The Triumph of Conservatism: A Reinterpretation of American History, 1900-1916 - Gabriel Kolko

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ACKNOWLEDGMENTS

every researcher owes debts to library workers and archivists
that can only be acknowledged but never repaid. This book would be
far poorer were it not for the splendid assistance given by the staff of
the various sections of the National Archives, and especially the Busi-
ness Economics Branch. I am also grateful for the cooperation given
by the staffs of the Manuscript Division of the Library of Congress,
the University of Virginia Library, the Columbia University Library,
and the Williams College Library. The various Harvard University
Libraries provided not only admirable working facilities but also a
congenial climate and stimulating friends.

All references to Federal Trade Commission materials in the Na-
tional Archives, or manuscripts in the F.T.C. Building, are based on
the commission’s kind permission to allow me to examine their
hitherto closed records. Needless to say, neither the commission nor
any other agency is in any way responsible for my use and interpre-
tation of materials under their jurisdiction.

Readers will notice that I do not discuss railroads in my history.
Such a consideration will be the topic of a more specialized volume,
Railroads and Regulation, to be published in the near future. Suffice
it to say, the history of railroads and government regulation in the
period 1877-1916 reinforces the more general theme developed in
this book.

Gabriel Kolko

( ONTENTS

Introduction

1

ONI!

Monopolies and Mergers: Predictions and Promises

11

1 WO

Competition and Decentralization:
The Failure to Rationalize Industry

26

1 HIM 1!

Theodore Roosevelt and the Foundations
of Political Capitalism, 1901-1904

57

I t M IK

Roosevelt As Reformer, 1904-1906

79

II VI!

Roosevelt and Big Business, 1906-1908

113

MX

The Failure of Finance Capitalism, 1890-1908

139

*H‘ VI'N

The Ordeal of William Howard Taft, 1909-1911

159

I’ H III 1

The Politics of 1912

190

N IN 1*

Woodrow Wilson and the Triumph
of Political Capitalism: Banking

217

1 IN

The Triumph of Political Capitalism:

The Federal Trade Commission and Trust Legislation

255

( (inclusion: The Lost Democracy

279

Notes

307

Index

332

INTRODUCTION

this is a book that is motivated by a concern with the seemingly
nonacademic question of “what might have been.” All men speculate
oi dream as they choose, but the value of the speculation depends on
the questions asked and on the way they are answered. Speculation of
(lie (ype prompting this volume has its value only if it leads to the re-
fjuimination of what happened — what really happened— in the past.

The political or economic history of a single nation, especially dur-
ing n specific, critical period which has a determining influence on the
clwmlcs that follow, should be examined with provocative questions
In mind. And there is no more provocative question than: Could the
American political experience in the twentieth century, and the nature
«if niir economic institutions, have been radically different? Every so-
flply has its Pangloss who will reply in the negative. But to suggest
(hut such a reply is mere apologetics would be a fruitless, inaccurate
♦IVmimplification. Predominantly, the great political and sociological
(hn a Isis of this century have pessimistically described and predicted
All Inexorable trend toward centralization, conformity, bureaucracy —
hWmd a variety of totalitarianism — and yet they have frequently been
p*ri«t >n.'i 1 1 y repelled by such a future.

t lulcss one believes in an invisible, transcendent destiny in Ameri-
VAI1 history, the study of men and institutions becomes the prerequisite
N discovering how one’s question should be answered. The nature of
flit questions in this study demands that history be more than a re-
pirlation of what is already known, in large part because what is
IfWiWii is insufficient, but also because histories of America from the
till'll ol the century onwards have all too frequently been obsessed by

1

2

INTRODUCTION

effects rather than causes. Theories and generalizations based on such
an approach have ignored concrete actions and intentions, and for this
reason the study of consequences and effects has also been deficient.

Assuming that the burden of proof is ultimately on the writer, I
contend that the period from approximately 1900 until the United
States’ intervention in the war, labeled the “progressive” era by vir-
tually all historians, was really an era of conservatism. Moreover, the
triumph of conservatism that I will describe in detail throughout this
book was the result not of any impersonal, mechanistic necessity but
of the conscious needs and decisions of specific men and institutions.

There were any number of options involving government and eco-
nomics abstractly available to national political leaders during the pe-
riod 1900-1916, and in virtually every case they chose those solutions
to problems advocated by the representatives of concerned business
and financial interests. Such proposals were usually motivated by the
needs of the interested businesses, and political intervention into the
economy was frequently merely a response to the demands of particu-
lar businessmen. In brief, conservative solutions to the emerging prob-
lems of an industrial society were almost uniformly applied. The result
was a conservative triumph in the sense that there was an effort to pre-
serve the basic social and economic relations essential to a capitalist
society, an effort that was frequently consciously as well as functionally
conservative.

I use the attempt to preserve existing power and social relation-
ships as the criterion for conservatism because none other has any
practical meaning. Only if we mechanistically assume that government
intervention in the economy, and a departure from orthodox laissez
faire, automatically benefits the general welfare can we say that gov-
ernment economic regulation by its very nature is also progressive in
the common meaning of that term. Each measure must be investi-
gated for its intentions and consequences in altering the existing power
arrangements, a task historians have largely neglected.

I shall state my basic proposition as baldly as possible so that my
essential theme can be kept in mind, and reservations and intricacies
will be developed in the course of the book. For the sake of communi-
cation I will use the term progressive and progressivism, but not, as
have most historians, in their commonsense meanings.

Progressivism was initially a movement for the political rationali-
zation of business and industrial conditions, a movement that operated

3

on the assumption that the general welfare of the community could be
best served by satisfying the concrete needs of business. But the regu-
lation itself was invariably controlled by leaders of the regulated in-
dustry, and directed toward ends they deemed acceptable or desirable.
In part this came about because the regulatory movements were usu-
ally initiated by the dominant businesses to be regulated, but it also
resulted from the nearly universal belief among political leaders in the
basic justice of private property relations as they essentially existed, a
belief that set the ultimate limits on the leaders’ possible actions.

It is business control over politics (and by “business” I mean the
major economic interests) rather than political regulation of the econ-
omy that is the significant phenomenon of the Progressive Era. Such
domination was direct and indirect, but significant only insofar as it
provided means for achieving a greater end — political capitalism. Po-
litical capitalism is the utilization of political outlets to attain condi-
tions of stability, predictability, and security — -to attain rationalization
— in the economy. Stability is the elimination of internecine competi-
tion and erratic fluctuations in the economy. Predictability is the abil-
ity, on the basis of politically stabilized and secured means, to plan
future economic action on the basis of fairly calculable expectations.
By security I mean protection from the political attacks latent in any
formally democratic political structure. I do not give to rationalization
its frequent definition as the improvement of efficiency, output, or in-
ternal organization of a company; I mean by the term, rather, the or-
ganization of the economy and the larger political and social spheres
in a manner that will allow corporations to function in a predictable
and secure environment permitting reasonable profits over the long
run. My contention in this volume is not that all of these objectives
were attained by World War I, but that important and significant legis-
lative steps in these directions were taken, and that these steps include
most of the distinctive legislative measures of what has commonly been
called the Progressive Period.

Political capitalism, as I have defined it, was a term unheard of in
the Progressive Period. Big business did not always have a coherent
theory of economic goals and their relationship to immediate actions,
although certain individuals did think through explicit ideas in this
connection. The advocacy of specific measures was frequently oppor-
tunistic, but many individuals with similar interests tended to prescribe
roughly the same solution to each concrete problem, and to opera-

4

INTRODUCTION

tionally construct an economic program. It was never a question of
regulation or no regulation, of state control or laissez faire; there were,
rather, the questions of what kind of regulation and by whom. The
fundamental proposition that political solutions were to be applied
freely, if not for some other industry’s problems then at least for one’s
own, was never seriously questioned in practice. My focus is on the
dominant trends, and on the assumptions behind these trends as to
the desirable distribution of power and the type of social relations one
wished to create or preserve. And I am concerned with the imple-
mentation and administration of a political capitalism, and with the
political and economic context in which it flourished.

Why did economic interests require and demand political interven-
tion by the federal government and a reincarnation of the Hamiltonian
unity of politics and economics?

In part the answer is that the federal government was always, in-
volved in the economy in various crucial ways, and that laissez faire
never existed in an economy where local and federal governments fi-
nanced the construction of a significant part of the railroad system,
and provided lucrative means of obtaining fortunes. This has been
known to historians for decades, and need not be belabored. But the
significant reason for many businessmen welcoming and working to
increase federal intervention into their affairs has been virtually ig-
nored by historians and economists. This oversight was due to the illu-
sion that American industry was centralized and monopolized to such
an extent that it could rationalize the activity in its various branches
voluntarily. Quite the opposite was true.

Despite the large number of mergers, and the growth in the abso-
lute size of many corporations, the do min ant tendency in the Ameri-
can economy at the beginning of this century was toward growing
competition. Competition was unacceptable to many key business and
financial interests, and the merger movement was to a large extent a
reflection of voluntary, unsuccessful business efforts to bring irresisti-
ble competitive trends under control. Although profit was always a
consideration, rationalization of the market was frequently a neces-
sary prerequisite for maintaining long-term profits. As new competi-
tors sprang up, and as economic power was diffused throughout an
expanding nation, it became apparent to many important businessmen
that only the national government could rationalize the economy. Al-

5

though specific conditions varied from industry to industry, internal
problems that could be solved only by political means were the com-
mon denominator in those industries whose leaders advocated greater
federal regulation. Ironically, contrary to the consensus of historians,
it was not the existence of monopoly that caused the federal govern-
ment to intervene in the economy, but the lack of it.

There are really two methods, both valid, of examining the politi-
cal control of the economy during the period 1900-1916. One way
would be to examine the effects of legislation insofar as it aided or hurt
Industries irrespective of those industries’ attitude toward a measure
when it was first proposed. The other approach is to examine the ex-
tent to which business advocated some measure before it was enacted,
and the nature of the final law. Both procedures will be used in this
dimly. The second is the more significant, however, since it points up
the needs and nature of the economy, and focuses more clearly on the
disparity between the conventional interpretation of progressivism and
the informal realities. Moreover, it illustrates the fact that many key
businessmen articulated a conscious policy favoring the intervention
of I lie national government into the economy. Because of such a policy
there was a consensus on key legislation regulating business that has
been overlooked by historians. Important businessmen did not, on the
whole, regard politics as a necessary evil, but as an important part of
tlirlr larger position in society. Because of their positive theory of the
*tatc, key business elements managed to define the basic form and con-
tent of the major federal legislation that was enacted. They provided
direction to existing opinion for regulation, but in a number of crucial
mutes they were the first to initiate that sentiment. They were able to
define such sentiment because, in the last analysis, the major political
lenders of the Progressive Era — Roosevelt, Taft, and Wilson — were
HUlllcicntly conservative to respond to their initiatives.

Although the main view in the business community was for a ra-
tionalization of the conditions of the economy through political means,
advocates of such intervention, the J. P. Morgan interests being the
most notable, were occasionally prepared to exploit the government in
mi irregular manner that was advantageous as well. The desire for a
larger industrial stability did not exclude an occasional foray into gov-
ernment property, or the utilization of the government to sanction a
business arrangement of questionable legality. Such side actions, how-
ever, did not alter the basic pattern. In addition, business advocacy

6

INTRODUCTION

of federal regulation was motivated by more than a desire to stabi-
lize industries that had moved beyond state boundaries. The needs of
the economy were such, of course, as to demand federal as opposed
to random state economic regulation. But a crucial factor was the
bulwark which essentially conservative national regulation provided
against state regulations that were either haphazard or, what is more
important, far more responsible to more radical, genuinely progressive
local communities. National progressivism, then, becomes the defense
of business against the democratic ferment that was nascent in the
states.

Federal economic regulation took two crucial forms. The first was
a series of informal detentes and agreements between various busi-
nesses and the federal government, a means especially favored by
Theodore Roosevelt. The second and more significant approach was
outright regulation and the creation of administrative commissions in-
tended to maintain continuous supervision over phases of the econ-
omy. We shall examine both forms from the viewpoint of their origins,
intent, and consequences; we shall examine, too, a number of move-
ments for regulation that failed to find legislative fulfilment of any sort
but that provide insight into the problems and needs of the economy
in the Progressive Era.

If business did not always obtain its legislative ends in the precise
shape it wanted them, its goals and means were nevertheless clear. In
the long run, key business leaders realized, they had no vested interest
in a chaotic industry and economy in which not only their profits but
their very existence might be challenged.

The questions of whether industrialism imposes narrow limits on
the economic and political organization of a society, or on the free-
dom of men to alter the status quo in some decisive way, have been
relatively settled ones for the large majority of social scientists. Max
Weber, perhaps more than any social theorist of the past century, ar-
ticulated a comprehensive framework which has profoundly influenced
Western social science to answer such questions in the positive. The
bureaucratic nature of the modem state and of modem industry, to
Weber, restricted all possibilities for changing the basic structure of
modem society. The tendency toward centralization in politics and in-
dustry, toward a mechanical impersonality designed to maximize effi-
ciency, seemed to Weber to be the do min ant theme in Western society,

7

tind the Weberian analysis has sunk deep roots into academic discus-
sions of the problem. The systematic economics of Karl Marx — as op-
posed to that of “Marxists” — also sustained the argument that the
basic trend in capitalist development was toward the centralization of
Industry. Indeed, such centralization was an indispensable aspect of
Western industrialism, and could not be circumvented. Both Marx and
Weber, one an opponent of capitalism and the other indifferent to it,
suggested that industrialism and capitalism, as they saw both develop,
were part of the unalterable march of history.

The relevance of the American experience to the systematic theo-
ries of both Weber and Marx will be explored in greater detail in the
conclusion, my argument being that neither of the two men, for all
their sensitivity and insight, offered much that is of value to under-
standing the development of capitalism and industrialism in the United
States. Indeed, the American experience, I shall try to contend, offers
much to disprove the formal theories of probably the two greatest so-
olul theorists of the past century. It is perhaps unfair to Marx, who
based his case on the conditions existing in England and Western Eu-
rope in the mid-nineteenth century, to burden him with American his-
tory at the beginning of the twentieth, but he was not terribly modest
•bout its applicability, and any respectable theory should have the pre-
dictive value its author ascribes to it. Weber, on the other hand, fre-
quently stated that the United States was the prime example of modern
tmpilulism in the twentieth century, if not the best proof of his theory.

American historians, with some notable exceptions, have tended,
without relying on comprehensive theoretical systems of the Weberian
or Marxist variety, also to regard the development of the economy as
largely an impersonal, inevitable phenomenon. All too frequently they
have assumed that concentration and the e limin ation of competition —
Inn I ness giantism or monopoly — was the dominant tendency in the
•tionomy. The relationship between the growth of new competition
•nd new centers of economic power and the legislative enactments of
the Progressive Era has been virtually ignored. On the contrary, fed-
•rnl legislation to most historians has appeared to be a reaction against
the power of the giant monopoly, or a negative response to the very
process of industrialism itself by a threatened middle-class being up-
rooted from its secure world by corporate capitalism. A centralized
Moiinmy, historians have asserted, required a centralized federal power
to prevent it from damaging the public interest, and the conventional

8

INTRODUCTION

political image of the Progressive Era is of the federal government as
a neutral, if not humane, shield between the public and the Morgans,
Rockefellers, and Harrimans. Progressivism has been portrayed as es-
sentially a middle-class defense against the status pretensions of the
new industrialists, a defense of human values against acquisitive hab-
its, a reassertion of the older tradition of rural individualism.

Recent historians have, for the most part, assumed monopoly was
an economic reality concomitant with maximum efficiency even where,
as I shall show, it was little more than a political slogan. For it is one
thing to say that there was a growth of vast accumulations of cor-
porate power, quite another to claim that there existed a largely mo-
nopolistic control over the various economic sectors. Power may be
concentrated, as it was, but the extent of that concentration is crucial.
Historians of the period have too often confused the power of corpo-
rate concentration with total monopoly. The distinction is not merely
important to American economic history, it is vital for the under-
standing of the political history of the period. And to the extent that
historians have accepted the consensus among contemporaries as to
the inevitable growth of monopoly at the turn of the century, they have
failed to appreciate the dynamic interrelationship between politics and
economics in the Progressive Era.

I shall be accused of oversimplifying what historians have written
about the Progressive Era, and with some justice. But I believe it can be
stated that although there are important and significant monographic
works or histories of specific phases of progressivism which provide
evidence to disprove aspects of such a comprehensive interpretation,
no other theory of the nature of the Progressive Era has, in fact, yet
been offered. And even most of the critical historians have accepted
the traditional view of progressivism as a whole. No synthesis of the
specific studies disproving what is, for better or worse, the conven-
tionally accepted interpretation among historians of the Progressive
Period has been attempted. Nor has there really been a serious effort
to re-examine the structural conditions and problems of the economy
during the period and to relate them to the political and especially the
detailed legislative history of the era. And it is here, more than any
other place, that a new synthesis and a new interpretation is required.

Yet the exceptional historical works that have raised doubts about
specific phases of the larger image of progressivism are suggestive in
that they indicate that the time for reinterpreting the Progressive Era

9

mill the nature, character, and purpose of progressivism, is opportune.
The work of the Handlins, Louis Hartz, and Carter Goodrich, to name
only a few, in showing the dependence of business on politics for gov-
ernment aid and support until the Civil War suggests that the unity of
business and politics was still a relatively fresh memory by the end
of die nineteenth century. Sidney Fine has pointed out how many busi-
nessmen treated laissez faire and Social Darwinian doctrine gingerly
when it was to their interest to have the government aid them. William
Miller has shown that the background and origins, and hence the sta-
tus, of the triumphant industrialists was respectable and at least well-
to-do, implicitly raising questions about the status conflict between the
allegedly old elite and the new. John Morton Blum has expressed
doubts as to the radicalism of Theodore Roosevelt, whom he has por-
trayed as a progressive conservative, but ultimately a conservative.
And, perhaps more than anyone else, Arthur S. Link has critically dis-
sected the history of the Wilson Administration in a manner that forces
the historian to doubt whether the conventional usage of the term
"progressive” really describes the New Freedom.

Although other monographs and studies can be cited, there are still
loo many loose ends in the traditional view of the Progressive Period,
mul no synthesis. More important, there has been no effort to study
the entire period as an integrated whole. The very best work, such as
I .ink’s, deals with presidential periods, but the movements for legisla-
I i ve enactments ran through nearly all the administrations, and can only
be really understood in that context. For without such a comprehen-
sive view, the origins and motives behind the legislative components of
(he Progressive Period cannot be fully comprehended, assuming that
there is some correlation between intentions or purposes and results.
Ami although historians have increasingly been puzzled by the grow-
ing incompatibility of the specific studies with the larger interpreta-
tion, they have not been able to reconcile or explain the disparities.
The Progressive Era has been treated as a series of episodes, unrelated
to one another in some integrated manner, with growing enigmas as
the quantity of new research into the period increases. The Progres-
sive Party was one incident, the Food and Drug Act another, the
conservation movement yet one more event.

In this study I shall attempt to treat the Progressive Era as an
Interrelated and, I hope, explicable whole, set in the context of the
nature and tendencies of the economy. Ultimately, the analysis that

10 INTRODUCTION

follows is of interest only if it throws light on the broader theoretical
issues concerning the extent to which a larger industrial necessity im-
posed limits on the political structure, and the manner in which politics
shaped the economic system.

CHAPTER ONE □

MONOPOLIES AND
MERGERS:
PREDICTIONS AND
PROMISES

not merely present-day historians but also contemporary ob-
icrvcrs of the growth of big business were virtually unanimous in be-
lieving that the concentration of economic power and the growth of
"monopoly” and the “trust” was an inevitable result of the modem
capitalist and industrial process. This unanimity was shared not only
by the conventional celebrators of the status quo — the businessmen,
conservative journalists, and intellectuals — but also by the critics of
capitalism. Indeed, at the turn of the twentieth century a belief in the
necessity, if not the desirability, of big business was one of the nearly
universal tenets of American thought.

It is to be expected, of course, that the large majority of the im-
portant businessmen who contemplated and wrote about the growth of
big business were ideologically receptive to a rationale of it. The simi-
larity of economic values held by both small and big businessmen was

11

12

MONOPOLIES AND MERGERS

sufficiently great to undermine the serious possibility of the sort of so-
cial analysis capable of challenging the big businessman’s belief in the
necessity and desirability of the economic world as he saw it evolving.
This agreement on fundamentals, needless to say, has never meant
there could not be very substantial disagreement among businessmen
on particular issues of specific importance to one type of industry, or
to a business of a certain size. But the signal fact of American business
history is the consensus among businessmen, of varying degrees of im-
portance and in different industries, that the capitalist system is worth
maintaining in one form or another; this has resulted in a general atti-
tude that has not necessarily been opposed to decisive innovation in
the economic sphere, but which has opposed radical economic pro-
grams that might, in the process of altering the concentration of eco-
nomic power, also undermine the stability, if not the very existence,
of the status quo. If the small businessman has at times joined anti-
monopoly crusades, the least that can be said is that he has never
pursued his beliefs to the point where his own stake in the existing
economic order has been endangered.

But, even granting the belief of so many historians in the existence
of small businessmen who have challenged the supremacy of the great
business enterprises, the evidence indicates that the vast majority ac-
cepted the inevitability of the monopoly movement in the economy
even if they believed it undesirable. The prevalent nonacademic analy-
sis at the turn of the century was that the cold, hard facts of industrial
life and technology favored the growth of big business, and that little
could be done to change the limitations these facts placed on political
programs for economic change. Such assumptions, based on a few
years’ experience with the merger movement, were as much wish-
fulfilment as descriptions of reality. By 1907 many big businessmen
were aware that their world was more complicated, and their utter-
ances were increasingly to become celebrations of a situation they
hoped to attain rather than of the world they actually lived in.

The Inevitable
Monopoly

Important businessmen and their lawyers in the first years of this
century were convinced that big business was necessary, inevitable,

13

and desirable as a prerequisite to rationally organizing economic life.
And the destructiveness of competition and the alleged technical su-
periority of consolidated firms were the catalytic agents of change
which made industrial cooperation and concentration a part of the
“march of civilization,” as S. C. T. Dodd, Standard Oil’s lawyer,
phrased it. Although there was a formal commitment to varieties of
laissez faire economic theory in most of the academic world, big busi-
nessmen developed their own functional doctrine very much opposed
to competition as either a desirable mechanism or as a goal. “. . . the
‘trust,’ ” wrote James J. Hill in 1901, “came into being as the result of
an cflort to obviate ruinous competition.” “Competition is industrial
war,” wrote James Logan, manager of the U.S. Envelope Company in
the same year. “Ignorant, unrestricted competition, carried to its logi-
cal conclusion, means death to some of the combatants and injury for
tdl. liven the victor does not soon recover from the wounds received
in I lie conflict.” 1 The instinct of survival made combination inevitable,
for combination was “caused primarily by the desire to obviate the
ell'ccts of competition” — or at least this was the dominant contempo-
rary view of the matter. 2

At the same time, combinations were the logical outcome of tech-
nological considerations, according to big business opinion. The larger
llu- output the smaller the cost of production, suggested Charles M.
Schwab of United States Steel, and this meant lower supervision costs,
lu ller goods, and lower prices.

The validity of the notion that corporate consolidation leads to in-
dustrial efficiency will be examined later. But a belief in this proposi-
tion was shared by virtually all of the important businessmen who
wrote or commented on the matter in the pre-World War I period,
tuid it is this belief which became the operational basis of their actions.
Hullressed by this conviction, men such as Schwab, Elbert H. Gary,
John D. Rockefeller, and John D. Archbold were certain that their
economic behavior was “inevitably” preordained. This synthesis of the
doctrines of the efficiency of consolidations and the destructiveness of
competition is echoed again and again in the later part of this period,
liven when the big business community developed an involved and
often shifting set of political goals it never ceased to view itself as
imiking the technologically efficient and inevitable response to the evils
of unrestricted competition. “Unrestricted competition had been tried
out to a conclusion,” an American Tobacco Company executive wrote

14

MONOPOLIES AND MERGERS

in 1912, “with the result that the industrial fabric of the nation was
confronted with an almost tragic condition of impending bankruptcy.
Unrestricted competition had proven a deceptive mirage, and its vic-
tims were struggling on every hand to find some means of escape from
the perils of their environment. In this trying situation, it was per-
fectly natural that the idea of rational co-operation in lieu of cut-throat
competition should suggest itself.” 3

At least a decade before his younger brothers embarked on that
grey, pessimistic intellectual discourse which now has a classic place
in American intellectual history, Charles Francis Adams, Jr., president
of the Union Pacific Railroad from 1884-1890, was announcing that
“the principle of consolidation ... is a necessity — a natural law of
growth. You may not like it: you will have to reconcile yourselves to
it.” “The modern world does its work through vast aggregations of
men and capital. . . . This is a sort of latter-day manifest destiny.”
Periods of intense competition were perpetually followed by combina-
tions and monopolies, according to Adams. “The law is invariable. It
knows no exceptions.” 4 But, ignoring the fact that the essence of
Brooks and Henry Adams’ generalizations on the role of the corpora-
tion in modern life can be found expressed with great clarity in the
earlier writings of their older brother, what is significant is that the
widespread belief among important businessmen in the inevitability, if
not the desirability, of the concentration of economic power was
shared by most contemporary intellectuals and journalists. And
although many intellectuals and journalists were critical of the func-
tions or even the nature of the massive corporation, most, like Charles
Francis Adams, Jr., resigned themselves to their necessity and shared
the consensus on the character and future of the American economy.

Academic economists of the historical school were less concerned
about the classical preoccupation with the nature and conditions of
competition than they were with fostering a positive attitude toward
minimal government regulation of the economy. It was this tacit ac-
ceptance of a theory directed toward redressing the existing balance
of social and economic power via political means that meant that, on
an analytical basis at least, the probably most sophisticated group of
American economic thinkers accepted the same fundamental premises
on the nature of the industrial structure as most major businessmen.
The variations on the businessman’s essential theme are as diverse as

15

ncndcmic minds are subtle, but a clear pattern can be distinguished.
Richard T. Ely, for example, maintained that large-scale business was
Inevitable, but that, save for certain types of services, monopolies in
the pure sense were not preordained; the burden of his writing was
concerned with the desirability of government regulation of “artificial”
monopolies that had sprung up rather than with regulation as a means
for restoring purely competitive conditions. Henry C. Adams, one of
the founders of the American Economic Association, saw in monopoly,
which was “natural” only in railroads, the possibility of “cheapness
nnd efficiency,” and was attracted by its advantages — provided it was
controlled by minimal government regulations. By and large, historical
economists such as E. Benjamin Andrews, Arthur T. Hadley, Edwin
It A. Seligman, and Simon N. Patten were ready to “accept,” with
111 lie empirical analysis, the existence of a trend toward monopoly as
« Curling point on which to provide proof of their theories on the de-
alt able relation of economics to government. And virtually all assumed
tltul, whether monopolistic or not, combined capital avoided the waste
uf smnll-scale production.

1 1 is to be expected, of course, that the movement toward corpo-
fttlc concentration had less sophisticated supporters in the academic
work) as well. S. A. Martin, president of Wilson College, told the
Civic I 'cdcration of Chicago’s Trust Conference in September, 1899,
", . . trusts are here and here to stay as the result of the inevitable laws
of Industrial development.” 5 Less detached defenses of the alleged
monopoly movement were as common as big business’ interest in cul-
IIVHling a rationale for its existence. George Gunton, popular econo-
mic who spent a number of his years as editor of Gunton’s Magazine
while on an annual retainer of $15,000 from Standard Oil of New
Jmcy, defended the necessity and desirability of big business. John
Moody, whose data-gathering service probably gave him more factual
Imllthls into the workings of business than any of his contemporaries,
WMR convinced that “The modem Trust is the natural outcome or evo-
lution of societary conditions and ethical standards which are recog-
nised nnd established among men to-day as being necessary elements
in the development of civilization.” 6

Bill even among the critics of business there was a general accept-
mue of the inevitability, and often the ultimate desirability of the
"ItnC,” RayStannard Baker and John B. Walker, for example, thought
monopoly to be progressive. Hardboiled Lincoln Steffens, who main-

16

MONOPOLIES AND MERGERS

tained that business was the source of political corruption, was never-
theless convinced that business concentration was inevitable. Only a
small minority of the muckrakers were concerned with the causes
rather than the consequences of the alleged business debauching of
politics, and most of them assumed that there were always certain
constants in American society, among which were “the trusts.”

It is ironic that the greatest celebrators of the alleged trend toward
corporate monopolies could be found among that element in Ameri-
can politics with attitudes sufficiently critical of the status quo to sug-
gest programmatic alternatives to the growth of monopoly — the so-
cialists. After the demise of the Populist movement, only the socialists
were in a position to explicitly reject a policy of economic change lim-
ited, as in the case of the advocates of laisscz faire, by a conservative
fear of undermining the fundamental institution of private control of
the economy in the process of attempting to restore competition. But
American socialists were Marxists, and Frederick Engels, with charac-
teristic sharpness, had made it clear that “the progressive evolution of
production and exchange nevertheless brings us with necessity to the
present capitalist mode of production, to the monopolisation of the
means of production and the means of subsistence in the hands of the
one, numerically small, class. . . .” Thus armed, American socialists
shared the general belief in the inevitability of corporate concentration
and monopoly, even after key business leaders began realizing it no
longer fitted the facts.

“. . . one cannot but acknowledge the natural development of the
successive steps of this [Standard Oil] monopoly,” the Social Demo-
cratic Party’s Campaign Book of 1 900 declared. “No better way could
be invented by which the natural resources may be made available for
the world’s need. The lesson of the trust, how to secure the greatest
satisfaction for the least expenditure of human energy, is too good to
be lost.” W. J. Ghent, a socialist writer, saw “an irresistible move-
ment — now almost at its culmination — toward great combinations in
specific trades . . . ,” and these combinations would dictate the terms
of existence for the small business permitted to survive. Even Henry
Demarest Lloyd, who was not a Marxist but eventually joined the
Socialist Party, gave up his vagueness on the possible alternatives to
monopoly expressed in Wealth against Commonwealth and concluded
“centralisation [was] . . . one of the tendencies of the age.”

But the resignation of the socialists to inevitable monopoly was not

17

inrirly a passive commitment to an article of faith. It stimulated many
of limn to a personal admiration of big businessmen unequalled by
UK ml paid eulogists. Indeed, big businessmen were the vehicles of prog-
ii'nn and the guarantors of socialism, and worth defending from per-
m mill al tacks for the parts they played in an impersonal industrial
process. For the socialists “are not making the Revolution,” The
Worker declared in April, 1901. “It would be nearer the truth to say
llml Morgan and Rockefeller are making it.” When Ida Tarbell’s His-
tory of Standard Oil appeared, Gaylord Wilshire, publisher of the
llltiNN circulation socialist Wilshire’s Magazine, criticized her for not
being more sympathetic to Rockefeller as an individual. The system
Wuk predestined and “Mr. Rockefeller was forced by unavoidable cir-
cumstances to pursue his path of consolidation. . . . The fault exists
not in the individual but in the system.” When J. P. Morgan died in
1914, the Socialist Call wrote “if Morgan is remembered at all, it will
In' for the part he played in making it [socialism] possible and assist-
ing, though unconsciously, in its realization.” 7

Although crucial aspects of the intellectual consensus on the role
of big business in the American economy were challenged now and
Again, and a Louis Brandeis might question the necessary relationship
between size and efficiency or an Edward Dana Durand could suggest
Ilial monopoly was not inevitable and competition was somehow at-
tainable, the significant fact is the pervasiveness of the proposition that
economic concentration, if not monopoly, is inevitable and is the price
hi be paid for maximum industrial efficiency.

Mergers and
Promoters

At the turn of the century the vast majority of the businessmen
who defended monopoly and corporate concentration believed in it as
a goal, and often strove to attain it, but their beliefs were based on a
vary limited experience which they thought would extend into the
fiilmc. Monopoly, however, was the exceptional and not the
loulinc characteristic of most industries, and the use of the term
"monopoly” or “trust” by defenders of the status quo was based
llimc on wish-fulfilment than on economic reality. (By “trust” I mean

18

MONOPOLIES AND MERGERS

effective control of an industry by one firm or a working alliance of
firms. Contemporary usage of the term usually equated it with mere
large size or concentration, without any specific reference to the extent
of market control but with the implicit assumption that large size
could be equated with control. )

Many big businessmen, such as Elbert H. Gary, knew that mo-
nopoly and the total concentration of economic power did not exist
even as they defended it as inevitable. What they were defending was
concentration and their monopolistic aspirations, aspirations that never
materialized despite their enthusiastic efforts. These key businessmen
believed concentration and combination led to efficiency and lower
costs, and therefore worked for them energetically. And although we
might find this inconsistency natural among the militantly unreflec-
tive, it can be suggested that what these men were defending was the
status quo, their past actions and consolidation, their future actions
and, hopefully, industrial domination. 3

Certainly it can be said that there was a revolution in the Ameri-
can business structure from about 1897 on — a revolution caused by
the sudden rise of a merger movement and the capitalization of new
combinations on an unprecedented scale. But the revolution was abor-
tive, whereas the intellectual conclusions based upon it were projected
into the future and survived long after the revolution’s death. Indeed,
the preoccupation with monopoly, which seemed imminent at the turn
of the century, led to general intellectual confusion as to the important
distinction between monopoly and concentration, and this confusion
has seriously interfered with subsequent efforts for a proper under-
standing of the nature of the American economy and politics in the
Progressive Era.

In 1895 only 43 firms disappeared as a result of mergers, and
merger capitalizations were $41 million. In 1898, 303 firms disap-
peared, and merger capitalization was $651 million; and in 1899 the
peak was reached when 1,208 firms disappeared as a result of merg-
ers, and merger capitalizations soared to $2,263 million. In 1900 the
movement declined precipitously to 340 firm disappearances, and a
capitalization of $442 million, and in 1901 the last great merger move-
ment, largely centered about the formation of United States Steel, oc-
curred when 423 firms disappeared, and capitalization amounted to
$2,053 million. But the merger movement declined sharply after 1901,
despite the permanent impact it had on the modern American intellec-

19

linil tradition. During 1895-1904 there was an annual average firm
disappearance of 301 companies and a total annual average capitaliza-
tion of $691 million. During 1905-1914 an average of only 100 firms
disappeared each year, and average capitalization was $221 million.
More important, from 1895 to 1920 only eight industries accounted
for 77 per cent of the merger capitalizations and 68 per cent of the net
firm disappearances. In effect, the merger movement was largely re-
Itrlcled to a minority of the dominant American industries, and that
for only a few years.

The merger movement was caused primarily by the growth of a
capital market for industrial stocks after the return of economic pros-
perity in late 1897. The railroad industry, which was the main pre-
occupation of European investors who had plunged $3.0 billion into
(he United States by 1890, was overexpanded and unprofitable. Capi-
tal invested in manufacturing increased 121 per cent from 1880 to
I (WO, and despite the depression of 1893-1897 increased 51 per cent
Over the next decade. In this context of shifting economic interests, the
hlatory of the 1 890’s is one of sharpening and extending the existing
liwtilulional structures for raising capital, and thereby creating move-
ments for mergers, concentration, and, hopefully, monopoly in the
American industrial structure.

The stock exchanges of the major financial centers had specialized
In railroads until the 1890’s, although the Boston Stock Exchange had
A copper mine section in the early 1850’s which helped establish that
ally’s domination over the American copper industry until the end of
the century. Boston, in addition to textiles, was also to dominate the
twpitnl market for the electrical and telephone industries until the turn
(if the century. In 1890 no more than ten industrial stock issues were
quoted regularly in the financial journals. By 1893 the number in-
creased to about thirty, and by 1897 to over two hundred.

Industrial capital until the late 1890’s came mainly from short-
Icnn loans and self-financing out of profits, aiding instability and
bankruptcies during the periods of economic decline or depressions.
By the 1 890’s industrial shares became widely available as a result of
Uie creation of new issues from mergers and the reconversion of many
irilNts, in the literal sense, into unified corporations. And many indus-
trial leaders, ready to retire or diversify their fortunes — Andrew Car-
itejilc is the most notable example — were anxious to develop outlets
for their shares. Each new wave of mergers created new sources of

20

MONOPOLIES AND MERGERS

capital in a sort of multiplier fashion, and, quite ironically, the very
creation of mergers and new industrial combinations led to the avail-
ability of funds in the hands of capitalists which often ended, as we
shall see, in the creation of competing firms.

The director and coordinator of this industrial metamorphosis was
the promoter. To the extent that the dominant stimulus for the pro-
moter was watered stock and his charge for the transaction, the eco-
nomic concentration which took place at the turn of the century was
based on factors other than technological elements inherent in any
advanced industrial society. But even if not interested in the transac-
tion fees per se, the promoter was invariably motivated by concern for
his own profit position and financial standing, and merely regarded
promotion as the means of maintaining or re-establishing it.

Promoters included in their ranks both members of firms being
merged and outsiders seeking to stimulate consolidations in order to
obtain a share of the profits of the merger. In a number of spectacular
instances the insiders of a group of firms sought to interest outside
promoters capable of financing or organizing the merger. Quantifica-
tions of the nature and source of all or a significant number of promo-
tions do not exist, but some of the more important variations can be
illustrated.

William H. Moore and his brother, James H. Moore, were among
the three or four most significant promoters. It would be difficult to
regard them as anything more than brilliant gamblers. In 1898 Wil-
liam H. Moore organized, at the request of a committee of manufac-
turers, the American Tin Plate Company out of a group of thirty-five
to forty plants. He took options on the component companies and ob-
tained loans to pay for them and provide working expenses. After
choosing all officers and directors, he sold $18 million in preferred
and $28 million in common stock to bankers and capitalists. Out of
this sum he awarded himself $10 million. The Moore brothers were
not always so fortunate, however. In 1899 they gave Andrew Carnegie
$1 million for an option to try to raise $350 million from bankers to
float the sale of Carnegie Steel. They failed, and Carnegie pocketed
the money. Similar failures in 1896 forced the Moore brothers into
insolvency.

Not infrequently a single manufacturer would turn promoter in
order to try to eliminate competition or instability. John W. Gates suc-
cessfully proved in a law suit that he earned less than $400,000

21

UiMHiy.lt underwriting profits and the exchange of shares in the promo-
linn of American Steel and Wire Company in 1899. His only sub-
Mnniiul profits were on his component properties that he turned over
In die new firm. In the case of the Amalgamated Copper Company,
funned in 1899 to gain effective control over the copper industry, out-
ililns imd insiders united. Thomas Lawson, Henry H. Rogers, and
William Rockefeller, none of whom had any special competence in
llie copper industry, cooperated with Anaconda Copper. J. P. Morgan,
(lie largest single industrial promoter and the dominating figure in rail-
rum I mergers, resorted to nearly every variation of insider and out-
sider promotions. Morgan, the Moore brothers, John R. Dos Passos,
Mi wire and Schley, and Charles R. Flint collectively probably ac-
wmmlcil for a minority of the total mergers and less than half of the
VHlue of all mergers; in addition, there were innumerable single indi-
viduals and investment bankers involved in the merger movement.

If (lie merger movement as organized by promoters was the result
tif "Inevitable” impulses within the capitalist economy, as well as tech-
nological imperatives to maximum efficiency, we should determine
whcllicr tlie organization of these new corporations was arranged in
nidi a manner as to: (1) make the competitive entry of new firms in-
creasingly difficult, and (2) avoid the accusation of being organized
prlmai ily to create the profits of promotion. It is understood that un-
Irnw I lie merger of firms within an industry obtained control of a crucial
raw material, patents, or trade advantage, it would have to maintain
H reasonable price and profit level or else run the risk of attracting new
competitors or allowing existing ones to grow, the risk being scaled to
(hr capital requirements of successful entry. Overcapitalization of the
slock of a merged firm, therefore, is an indication of the extent to
which a merger was executed to obtain maximum industrial efficiency,
control over the competitive annoyances of the industry, or the profits
of promotion and speculation. Watered stock meant higher prices in
Older to pay dividends, and higher prices opened possibilities of new
Competitive entries.

It is significant, of course, that the heyday of the merger movement
Wiin restricted to a few years, and ended almost as abruptly as it be-
Unn, There are now few academic defenders of the thesis that the
Itlc i ger movement was primarily the outcome of industrial rationality
oi a desire for control of economic conditions. Charles R. Flint, one
of l lie more important promoters and organizer of twenty-four con-

22

MONOPOLIES AND MERGERS

solidations, naturally claimed that mergers were intended mainly to at-
tack the evils of competition, and that the profits of promoters were
greatly exaggerated by critics. Capitalization, he maintained, was not
overinflated, and Flint published data showing that the average return
on the market value of the stock of forty-seven merged firms was 13.6
per cent. 9

The evidence is overwhelming, however, to indicate that the water-
ing and overcapitalization of the securities of merged companies was
the general rule. This fact was widely acknowledged at the time by
economists, by most promoters, and by many businessmen. It was
simply not generalized upon or related to contemporary theories on
the necessity and inevitability of the trust. Indeed, the incompatibility
between the obvious ulterior motives behind the merger movement
and social theory was ignored even by those attacking the evils of
watered stock. J. P. Morgan’s lawyer, Francis Lynde Stetson, frankly
admitted that he opposed any scheme for limiting overcapitalization
that risked “taking away from men of enterprise their paramount mo-
tive for corporate organization. . . .” 10

A government study in 1900 of 183 industrial combinations shows
that stocks and bonds valued at $3,085,000,000 were issued for plants
with a total capital worth of $1,459,000,000. The Department of La-
bor, in the same year, claimed that a substantial group of combina-
tions they studied issued stocks valued at twice the cost of reproducing
active plants. Arthur S. Dewing, in a study of fourteen mergers, found
that the average overcapitalization was well in excess of 50 per cent of
the assets. The large majority of mergers clearly capitalized their firms
on the basis of preferred stock representing the cost of the real prop-
erty or assets and common stock representing the costs of promotion,
the expenses of amalgamation, and the expectations of future earnings
as a result of the merger. John W. Gates, Henry O. Havemeyer, and
John R. Dos Passos freely admitted that common stock represented
the promoter’s estimate of the potential earning power of consolida-
tions. The profits of underwriters, in many instances, came exclusively
from the sale of securities, not anticipated dividends, and this fact
alone placed a premium on overcapitalization.

Seven of the combined firms that later entered the United States
Steel merger paid out $63 million in stock as commissions to pro-
moters, excluding bonuses and other forms of commission. The tan-
gible assets and property of United States Steel on April 1, 1901, were

23

worth $676 million, and the average market value of the shares it
acquired was $793 million in 1899-1901. The total capitalization of
tiie firm was $1,403 million, and the cost of promotion and under-
writing consumed over $150 million of this amount. United States
Rubber, in much the same way, based its capitalization on 50 per cent
watered stock, the common shares representing “the increased earning
capacity by reason of the consolidation. . . .” 11

Promotion, with its premium on speculation to maximize its prof-
its, soon extended its heady gambling mentality to the general stock
market. Brokers emphasized the more profitable speculative stock or-
ders rather than investment buying, and they directed their customers
to the speculative issues. The commission rates on speculative orders
made investment orders less profitable, and by no later than 1904-
1907 the volume of transactions on the stock market far exceeded in-
vestment demand. This trend alarmed a number of more conservative
capitalists primarily concerned with the means, not the ends, of the
merger movement, and led to dire predictions, most of which were
realized by 1932. Russell Sage wrote in 1901 that watered stock “has
also . . . produced a feeling of unrest and disquiet, industrial and po-
litical, that threatens, sooner or later, to bring serious results.” Henry
Clews, the banker, was less restrained.

Many of these [combinations] have been organized in disregard and de-
fiance of legitimate finance, and have exposed the stock market and all
the monetary interests depending upon them to risks and disastrous dis-
turbances inseparable from organizations whose foundations rest largely
on wind and water. . . . 12

J. P. Morgan persistently overcapitalized his promotion schemes
whenever he was able to do so. His greatest triumph was United States
Steel, but when the merger initiative came from insiders, as in the case
of International Harvester, Morgan restricted himself to more limited,
yet amply lucrative profits. In every case, however, Morgan sought to
obtain substantial, if not total, managerial control or board represen-
tation.

Morgan’s efforts were generally marked by success, and had he
avoided managerial responsibilities his fortunes might have been larger
and his reputation would certainly have been better. In the case of the
formation of the International Mercantile Marine Company, Morgan
became deeply involved in a grossly overextended venture. His firm
initially received $5.5 million in preferred and common stock at par,

24

MONOPOLIES AND MERGERS

and a share of the $22 million paid to bond underwriters. An addi-
tional $6 million went to shipper-promoters, and the new firm was
burdened with a total of $34 million in merger fees on a preferred and
common stock issuance of $120 million and $50 million in cash. But
the company was poorly conceived and poorly managed: in the end
the Morgan firm lost about $2 million, and International Mercantile
Marine went out of business after World War I. In the case of Ameri-
can Telephone and Telegraph, Morgan fought for effective control of
the board, which he managed to obtain in 1907. As part of an over-all
effort to replace New England management and financial connections,
a Morgan-led syndicate obtained a $100 million bond flotation, but
was able to dispose of only $10 million before giving up the effort in
1908. Although Morgan’s philosophy of trying to obtain managerial
control along with the profits of promotion was, on the whole, profit-
able, it is questionable whether he increased managerial or industrial
efficiency. The primary goal of promotions was, as Francis Lynde
Stetson admitted, profits. Insofar as Morgan’s profits were not imme-
diate or short-range, but tied to the managerial and profit perform-
ance of the new company, Morgan tended to do relatively poorly. And
in several spectacular instances Morgan either lost money or, as in the
railroad industry, bankrupted companies.

To the extent that promotions and mergers were organized among
competing firms, the dominant causal factor behind the merger and
consolidation movement can be said to have been the existence of
internecine competition. A market for industrial securities did not
exist in any significant form before 1897, but it most certainly con-
tinued after the decline of the merger movement in 1901, and the
history of the movement must be explained by more than a market
for securities. In the period 1897-1901 the merger movement was
the unique result of the rise of a market for securities and an im-
petus to eliminate competition, and the success of outside promoters
was dependent on both factors. But the decline of mergers was due
to the collapse of the promises of stability, profits, and industrial co-
operation. Save for the outside promoter who took his profit imme-
diately and then broke his ties with the consolidation, the larger part
of the mergers brought neither greater profits nor less competition.
Quite the opposite occurred. There was more competition, and prof-
its, if anything, declined. Most contemporary economists and many

25

•llinllci businessmen failed to appreciate this fact, and historians
have probably failed to recognize it altogether. This phenomenon, I
liiuliilitin, is a vital key to understanding the political history of the
jipliod of reform preceding World War I.

Most important businessmen did not comprehend the general
dp mi sc of the merger and consolidation movement save in their own
Industry, and were unable to understand the larger economic context
III which they operated. Businessmen, as a group, are not prone to
mllcction, much less theoretical generalization, but they did act to
ameliorate their own illnesses. Now and again, however, a business
journal commented on the failure of the merger movement and on
the real trends, as opposed to commonly accepted mythology, in the
American economy as a whole. In late 1900 The Iron Age lamented:

Hupcrience has shown that very few of the promises of the promoters of
consolidations have materialized. That some of them are satisfactorily
profitable is undoubtedly true. . . . Others are less so; some are con-
spicuously unprofitable; some have dissolved, and more will have to
dissolve within the next two or three years. Before another wave of the
consolidation movement overtakes us, if it ever does, the experiment will
have proved itself by the test of time , 18

CHAPTER TWO □ □

COMPETITION AND
DECENTRALIZATION:
THE FAILURE TO
RATIONALIZE
INDUSTRY

the first decades of this century were years of intense and
growing competition. They were also years of economic expansion
and, in a number of industries, greater internal concentration of capi-
tal and output. But neither of these phenomena was incompatible
with increased competition. From 1899 to 1904 the number of manu-
facturing firms in the United States increased 4.2 per cent, and from
1904 to 1909 they increased 24.2 per cent — a growth of 29.4 per
cent for the entire decade. Of the nine manufacturing industries with
a product value of $500 million and up in 1909, only one, the iron
and steel industry, had less than 1,000 establishments, and the ex-
ception had 446. In the thirty-nine industries with products valued

26

27

at $100-500 million, only three had less than one hundred estab-
lishments. 1 The numbers of business failures from 1 890 on followed
the classic pattern of being high in depressions and low in periods of
prosperity, and there is no evidence whatsoever that failures due to
competition were any more numerous in 1900 than in 1925.

The new mergers, with their size, efficiency, and capitalization,
were unable to stem the tide of competitive growth. Quite the con-
trary! They were more likely than not unable to compete successfully
or hold on to their share of the market, and this fact became one of
utmost political importance. The very motives behind the merger
movement, and the concern with promotion of enterprises irrespec-
tive of the health of the component firms or the advantages of com-
bination, led to an immediate apprehension among well-informed
businessmen. “One question of great interest in relation to our new
industrial combinations is whether a proper readjustment of their
hugely inflated capital and excessive charges will place them perma-
nently in a condition of efficiency, productiveness, solvency, and
prosperity, or whether they will ultimately drift, one by one, into the
hands of receivers . . .” said Henry Clews at the opening of the
century. 2

This skepticism was more than justified by subsequent events,
since the promises of the promoters were, by all criteria, mirages.
Forty-eight pre-World War I manufacturing mergers studied by the
National Industrial Conference Board had a nominal return on their
net worth in 1903-1910 averaging 5.8 per cent — no greater than the
average to other firms. Arthur S. Dewing, studying thirty-five mergers
of five or more firms in existence at least ten years before 1914, dis-
covered that the steep fixed interest charges and contingent pre-
ferred stock dividends imposed by promoters led to a radical deflation
of promoters’ promises. The earnings of the pre-merger firms were
about one-fifth greater than the ten-year average profits of the new
consolidation. Promoter estimates of expected ten-year earning
turned out to be about twice the actual performance. Another study
by Dewing reveals that heavy fixed charges on the basis of expected
earnings, administrative difficulties, and continued competition
caused ten mergers to earn an average of 65 per cent of their pre-
consolidation profits. Shaw Livermore, in a study seeking to defend
the success of 328 mergers formed during 1888-1905, nevertheless
was forced to conclude that only 49 per cent were “successes” in

28

FAILURE TO RATIONALIZE INDUSTRY

the sense that their rate of earnings compared favorably after 1918
to other companies in their field. Forty per cent failed altogether,
and 1 1 per cent limped along at lower than average profit levels. He
judged the main causes of failures to be poor judgment by promoters,
dishonesty, and the decline of the industries.

The inescapable conclusion is that mergers were not particularly
formidable and successful, and surely were incapable of exerting con-
trol over competitors within their own industries. “Mere bulk,
whether of capital or of production, is not, per se, an element of
strength,” The Iron Age commented in 1900. “Some of the new
plants are better equipped, carry less dead weight of unproductive
assets and can produce more cheaply per unit of output than the
consolidations can. So far as can be judged, the great industrial
aggregations, instead of discouraging competition, have rather en-
couraged it.” 3 Most of the new mergers started out with less than
monopoly control, and virtually all lost their initial share of the
market. This failure, discussed in detail later in the chapter, was due
to the rise of important new competitors and the significant econ-
omies of size attainable at lower production levels. Thirteen con-
solidations studied by Dewing controlled an average of only 54 per
cent of the output of their industries upon organization, and the U.S.
Industrial Commission studied a sample with an average market
share of 71 per cent. Of seventy-two mergers listed by Ralph L.
Nelson, twenty-one controlled 42.5 to 62.5 per cent of their markets
upon formation, twenty-five controlled 62.5 to 82.5 per cent, sixteen
controlled over 82.5 per cent, and ten controlled “large” portions.

There is also data to suggest that very large corporations as a
whole did poorly — and many of these were recent mergers. Alfred
L. Bemheim studied the 109 corporations with a capitalization of
$10 million and up in 1903. Sixteen of these failed before 1914 and
were dropped from the list, leaving ninety-three. Only twenty-two of
the remainder paid common stock dividends of over 5 per cent during
1900-1914, and twenty-four paid nothing. Their average dividend
on common stock over the period was 4.3 per cent. The market value
of the common stock of forty-eight of the companies declined over
1900-1914, and rose in only forty-five instances.

In the light of such mediocre profit records it should not surprise
one to discover that the mobility of giant firms out of the ranks of
the largest hundred industrial corporations was high. Of the fifty

29

largest companies in 1909, seven could not be found in the ranks
of the top hundred in 1919, and twenty could not be found there in
1929; for the top hundred corporations in 1909 the figures are forty-
seven drop-outs by 1919 and sixty-one by 1929. By comparison, of
the top one hundred industrials in 1937, only twenty-eight could not
be found in that category in 1957. Bemheim studied the fate of the
ninety-nine largest industrials of 1909 by 1924, and found that forty-
seven of them could not be found among the largest two hundred cor-
porations of every type. Of this forty-seven, seven had dissolved, three
had written down their capital to realistic proportions and were dis-
qualified, nine had become unable even to pay their preferred divi-
dends in full, two had paid no common dividends, ten had merged or
reorganized without loss, and sixteen had failed to grow fast enough
after 1909. 4

Many large corporations soon found their overcentralization un-
profitable, and tried to reduce plant sizes and distribute plants more
widely throughout the nation. In the case of United States Steel, as
we shall see, the organizational structure was centralized only at the
very highest policy level, and autonomous operating units and spe-
cialized staffs have been a general trend in the large corporate struc-
ture since the turn of the century. To the extent that Joseph A.
Schumpeter was correct in holding that each significant new innova-
tion was embodied in a new firm and the leadership of new men in
a still dynamic capitalism — and that firms that do not innovate die —
it can also be said that important competitive trends were inherent
in the economic structure. The growth in the number of individual
patents issued until the peak year of 1916 indicates that innovation
was very much a part of the American economy and technology until
World War I. Even if organized corporate and government research
and development now dominates the field, and many private patents
are purchased just to be suppressed, or are infringed merely because
most private inventors are economically helpless, enough individuals
were able to break into established fields, or to create entirely new
ones, to make a significant economic difference. 5 For all of these
reasons The New York Financier, in opposition to the vast majority
of contemporary writers and modern historians, was correct when it
observed in June, 1900, that “The most serious problem that con-
fronts trust combinations today is competition from independent

JO

FAILURE TO RATIONALIZE INDUSTRY

sources. ... In iron and steel, in paper and in constructive processes
of large magnitude the sources of production are being multiplied,
with a resultant decrease in profits. . . . When the papers speak of a
cessation of operation in certain trust industries, they fail to mention
the awakening of new life in independent plants. . . ,” 6

Thi s “awakening of new life” in the economy is the subject of
the case studies that follow. The examples are significant not only
because of their economic role, but also because of their political
roles. Moreover, although these typologies reflect a trend, they also
involve industries which most historians have been inclined to think
proved the conventionally accepted thesis that the tendency in indus-
trial life at the beginning of this century was toward economic con-
centration and monopoly. They are the “classic” examples of the
“trust” — steel, oil, telephones, meat, and a number of others. And
in all of these cases we find a fluidity of economic circumstances and
radical changes generally slighted by the historian. The shifting mar-
kets and resources, the loss of relative power by the dominant com-
panies, the specific failure of the merger movement in attaining either
stability or economic control — these are the significant features that
emerge from our case studies.

The Iron and
Steel Industry

In 1889 there were 719 companies in the blast furnace, steel
work, or rolling mill industry. 7 Many of these firms produced a whole
range of steel and iron products, from wire to tinplate, and the steel
and iron industry is best characterized as being highly competitive
at the time. Since the capital requirement for the consolidation of
any important segment of the industry was too high, and since there
was no means of preventing the sufficiently powerful firms special-
izing in one branch of the industry from diversifying into others, the
history of the steel industry in the late 1880’s and 1890’s is one of
voluntary efforts to arrange a variety of pools and price and mar-
keting agreements. These, as we shall see, were almost universally
failures, and did not solve any of the basic problems inherent in a

31

H»lii|H litivc market structure. The result was a series of mammoth
»iM'i(i.cis and consolidations which ultimately led to the formation of
I lulled States Steel, which also failed to attain stability and control
tif llir market.

The price of most steel goods declined more or less regularly
until I K94-1895, and although prices generally rose in subsequent
ypitiN, there was continual insecurity within the industry as to what
SM'li competitor might do next. The apprehension was later justified.
'I'Iip dozens of attempts at voluntary pools in various sections of the
Heel industry took place after periods of intense price competition,
MIHl the pools were in effect agreements to recuperate before more
Internecine wars. The Bessemer Pig Iron Association and the Bes-
wmer Steel Association were formed in the mid-1890’s and failed
to control either prices or excess output. The steel billet pool failed,
ait diil the wire and wire-nail pools. No sooner was an agreement
liliidc than a single firm would decide to violate some phase of it and
eventually bring the whole structure down. Only the steel rail pool,
nmong the many tried, was moderately successful. Its unique posi-
tion was due to the small number of competing firms, their willing-
ness to accept low profit levels, and the fact that the pool handed
V! per cent of the market over to the major pool buster, Andrew
Carnegie. The Addystott Pipe decision by the Supreme Court in De-
cember, 1899, ended the possibility of lawfully resurrecting the pool
system by declaring illegal the division of markets and price-fixing.

The voluntary pool period, having failed to attain its aims, was fol-
lowed by a period of mergers between competitive firms which came
liltle short of failure as well. The Moore brothers organized the
American Can, American Steel Hoop, National Steel, and American
Tin Plate companies. In 1898 Morgan formed the Federal Steel Cor-
poration with a capitalization of $200 million, the largest of the
twenty-one major iron and steel consolidations during 1898-1900.
In 1899 John W. Gates merged seventeen wire companies into the
American Steel and Wire Company. Despite the ample amounts of
watered stock available for new mergers and the gargantuan efforts
of Morgan, Gates, and the Moores, the steel industry in 1899 re-
mained competitive. Although the number of firms with blast fur-
naces declined 27 per cent from 1889 to 1899, there were still 223
establishments left. And the number of steel work and rolling mill
companies increased 7 per cent over the same period, to 445.

32

FAILURE TO RATIONALIZE INDUSTRY

With the merger movement at least temporarily failing to attain
stability and control within the industry, the ten or more large and
powerful new consolidations confronted each other in an uneasy
armed neutrality. The crisis came in the spring of 1900 when Car-
negie decided to build a large tube plant at Conneaut, Ohio, his first
in that field, thereby threatening J. P. Morgan’s new promotion, the
National Tube Company, and shattering the general agreement
within the industry not to diversify into competitive areas. National
Tube withdrew its contracts with Carnegie and proceeded to plan
its own steel works. In June, 1900, American Steel and Wire decided
to begin producing its own steel and canceled its contract with
Carnegie. The American Bridge Company followed suit, National
Steel began preparing for its own production, and Federal Steel
indicated its interest in beginning to produce wire goods. American
Steel Hoop cut its steel orders with Carnegie and prepared to enter
the wire, rods, and nail business. The working, informal detente
between the Morgan, Gates, and Carnegie empires collapsed amid
threatening diversification and price competition that promised to
drive the overcapitalized steel mergers to bankruptcy and ruin.

Carnegie and Gates were clearly dangerous nuisances to Morgan,
especially since Carnegie probably had the lowest steel costs in the
nation and could be especially formidable in any competitive strag-
gle. Moreover, Carnegie was threatening Morgan on another front.

In 1899 Alexander J. Cassatt became president of the Pennsyl-
vania Railroad and moved to end a long-standing rebate agreement
established by Carnegie and Thomas Scott, former Pennsylvania
president. The agreement had allowed Carnegie to receive rates
equivalent to what he would have charged himself had he built his
own railroad, often cutting rates by one-half. Carnegie decided to
retaliate against Cassatt by making an agreement with George Gould,
son of Jay Gould, to build a railroad to Baltimore parallel with the
Pennsylvania Railroad for much of the way, thereby threatening the
entire Eastern railroad system. With Gates calling for renewed com-
petition and Carnegie endangering the Morgan steel and railroad
empire, it was inevitable that attempts at permanent reconciliation
via a merger be made.

By the end of 1900 both Gates and Carnegie were having sober
second thoughts about the desirability of a full-scale conflict with the
Morgan steel companies. In addition, since 1898 Carnegie had been
undergoing a series of internal company disputes with Henry Clay

33

Frick which eventually led to a total break and a reorganization of
the company. The old man was tired, and the idea of retiring must
have appealed to him. Carnegie authorized Charles M. Schwab to
hint at a banquet in New York in December, 1900, at which Morgan
was present, that the integration and specialization of the entire steel
Industry was a desirable goal. Within a month Schwab, Gates, Mor-
gan, and Carnegie completed all negotiations, and the United States
Steel Corporation was officially organized in New Jersey on February
23, 1901. But the integration of the steel industry was not the pri-
mary goal of the merger, since the company started with substantial
competition left in the field. The goal was to eliminate the two most
Important and irrational steel producers in the industry, and, hope-
fully, to introduce stability, not control, over the steel market. Ap-
proximately 40 per cent of the steel industry was left outside the
merger. Instead of making an effort to extend control over it, Morgan
chose to capitalize United States Steel with over 50 per cent water
and to filter over $150 million of U.S. Steel’s $1,403 million capital
to the promoters and underwriters.

United States Steel consisted of what had once been 138 different
companies. Some of these, such as Carnegie, were highly efficient
industrial units run with probably maximum economy. American
Steel and Wire, on the other hand, closed down approximately two-
fifths of the plants it acquired in 1899 as antiquated or unnecessary.
All, however, were absorbed by U.S. Steel. Had the motive behind
the formation of United States Steel been efficiency and integration,
weaker combinations would have been excluded. Thus it is clear
that the merger was directed at minimizing potentially devastating
competition.

The organizational structure of the new company reflected this
fact as well. United States Steel was not an operating company but
essentially a security-holding company with a board of directors and
finance committee which controlled the power in the last instance,
but often had great difficulty in establishing hegemony over each of
the ten great divisions within the corporation. Each of these com-
ponents had its own president and board and practical jurisdiction
over its own operations and labor policy. Judge Gary, chairman of
U.S. Steel’s board, freely admitted that this decentralization policy
was the most efficient method of management.

In the process of constructing the organizational hierarchy for

34

FAILURE TO RATIONALIZE INDUSTRY

the new corporation, the tensions between the executives with back-
grounds in steel-making (especially those from Carnegie Steel) and
the new financial controllers led to immediate conflicts which under-
cut the assertion that the corporation was the inevitable outcome of
industrial technology. Charles Schwab, who had worked his way up
the Carnegie ranks, became the first president of U.S. Steel, and
immediately clashed with Judge Elbert Gary, chairman of the execu-
tive committee and Morgan’s representative. By July, 1901, Schwab
was threatening to resign because of the new financiers “who do not
understand the whole steel situation.” 8 Schwab later complained that
the outsiders on U.S. Steel’s board, especially Marshall Field and
H. H. Rogers, were trying to exploit the corporation for their own
purposes by selling it assorted companies or schemes. Over the next
few years the power in the firm was shifted from the board of direc-
tors entirely to the finance committee, chaired by Morgan’s partner,
George W. Perkins, and Schwab resigned in late 1903. He was fol-
lowed in the presidency by another Carnegie steelmaker, William E.
Corey, who lost his job in 1909 for siding with the presidents of sub-
sidiaries against Gary; many of the presidents were ignoring central
directives and continued to do so for many years.

The efficiency of the new merger was exhibited by the financial
crisis that gripped the corporation during its first years. Henry C.
Frick, anticipating that the overcapitalization and the new managers
might ruin U.S. Steel, quietly began unloading nearly $50 million
of his shares in the company. His suspicion was justified. U.S. Steel
common shares, which sold at a high of $55 in 1901, reached a low
of $9 in 1904. The market value of the firm’s stocks and bonds fell
$270 million below par value during its first year. In 1902 the com-
pany decided it needed $50 million cash to further integrate its
component companies and failed to raise one-quarter of that amount.
Even more alarming, however, was the precipitate drop in the profits
of the corporation at the end of 1903, when a general slump affected
the steel industry. In the fourth quarter of 1903 the common divi-
dend of U.S. Steel was cut in half, and it was dropped altogether for
the next two years. In 1904 U.S. Steel earned 7.6 per cent on its
investments, as compared to 15.9 per cent in 1902. Stabilization was
clearly yet to be attained. Even more indicative was the fact that
during 1901-1910 U.S. Steel ranked third among eight steel com-
panies on their operating profits as a percentage of gross fixed assets.
Profits, too, seemed disappointing in comparison to the promises.

35

“If the Steel Corporation is to be a permanent success it seems
to me that it must at least accomplish two things,” George W. Per-
kins wrote John D. Rockefeller in July, 1903. “1st. Regulate and
steady prices, both in times of good and bad business conditions.
2nd. Be very far-sighted in its financial policy and management.” 0
Price maintenance in periods of prosperity was an easy task, and
wive for a small decline in 1904, steel output increased steadily
through 1907. The formation of U.S. Steel had not affected prices
because of the company’s desire not to attract new competitors, and
during the boom of 1906-1907 the average price of steel was lower
than it had been during the boom of 1901-1902. In late 1907, how-
ever, the market for steel began declining. In 1908, steel output was
40 per cent less than in 1907, and U.S. Steel faced its first real test of
"bad business conditions.”

On November 21, 1907, forty-nine steel industry leaders met at
llte Waldorf-Astoria in New York to participate in the first of what
were soon dubbed the “Gary Dinners.” Gary not only invited the steel
men, however; he also notified the steel trade journals, the Department
of Justice, the Department of Commerce, and the newspapers. Gary
was anxious to avoid the impression that he was creating illegal price-
lUing agreements or that there was anything secretive in his actions.
At the meeting he stressed the need for industry cooperation and all
(lie executives present attacked the demoralization of prices that had
insulted from invasions of each other’s markets. In the hope of attain-
ing price stability, the group agreed not to reduce prices without
mutual consultation, and a committee of five, including Gary, was
elected to give advice and conciliate differences. Gary insisted that
the meeting was not an effort to fix prices but was instead an effort
to maintain them by “gentlemen’s agreements.”

In late January, 1908, a larger number of steel executives, repre-
urnting over 90 per cent of the industry, met again at the Waldorf.
According to Gary “every manufacturer present gave the opinion that
lio necessity or reason exists for the reduction of prices at the present
dine. . . .” This viewpoint was based not on a formal agreement, but
oil a consensus. The industry wanted competition, but not “bitter
Win fare.” Gary, at the same time, took steps to prevent government
jliu.senition of his voluntary agreements. He wrote Attorney General
C'luiilcs Bonaparte in February, 1908, that the understanding had
been made at the initiative of large steel customers with expensive
Inventories who wanted the steel industry to maintain prices. Still in-

36

FAILURE TO RATIONALIZE INDUSTRY

sisting no formal agreements had been made, Gary wrote that “We arc
perfectly satisfied to limit the amount of our business to our propor-
tion of capacity and to do everything possible we can to promote
the interests of our competitors; and by frequent meetings and the;
interchange of opinions we have thus far been able to accomplish
this result without making any agreements of any kind.” 10 The meet-
ings continued.

By May, 1908, however, breaks again began appearing in the
united steel front. And Perkins complained to Morgan that U.S.
Steel’s independent barons, still oriented toward industrial produc-
tion rather than financial control, were among the leading trouble-
makers. But rumors were circulating that price cuts were being made
or were imminent, and in late May the steel men again gathered to
reaffirm their loyalty to the Gary understandings. But it was of no use,
and several weeks later they met again to reduce prices on a large
number of major steel items to counter the secret price-cutters.

After June, 1908, the Gary agreement was nominal rather than
real. Smaller steel companies began cutting prices and distressed
U.S. Steel sales managers clamored, for steps to meet the competition.
Customers began hedging their buying in the hope that more price
cuts would follow, and in February, 1909, the major steel companies
met, admitted they had cut prices to meet competition, and formally
ter min ated the Gary agreements without setting minimum prices.
“So large a part of the current business has been going to those who
were either willing or compelled to make lower prices that the situ-
ation finally became unendurable,” concluded The Iron Age. 11

The collapse of the Gary agreements is an important turning
point in the history of steel, for it represents the final failure of the
promised stability and profit, that motivated the U.S. Steel merger.
It represents, as well, the opening of a period of intense competition
for steel markets, in which price competition was an important ele-
ment, which lasted until World War I and the establishment of a
working coordination over prices under the auspices of the American
Iron and Steel Institute. In 1908 the prices of most important steel
products fell sharply according to published data, and even more
sharply if individual secret rates are taken into account. It was not
until 1916 that the prices of the peak years of 1902 and 1907 were
restored in most lines of steel, even though output in 1909 and sub -
sequent years was as great, if not greater, than in 1 907.

37

The formal termination of the Gary Dinners did not result “in as
much demoralization” of steel prices as had been expected, Perkins
wrote Morgan in March, 1909. But the demoralization had already
gone as far as it could, and now steel makers expressed the fear that
they were being forced to embark on expansion programs leading
to overproduction and excess facilities. In October, 1910, Perkins
jealously wrote Morgan that he admired the European steel indus-
try’s cartel structure and the fact that the members of the industry
had resorted to cooperation “rather than cutting one another’s
throats. . . ,” 12

Even if the founders of United States Steel did not intend to ex-
tend control over the entire steel industry, it is at least certain that
they were anxious not to lose their substantial original position. The
new company pursued a fairly active policy of acquiring existing
firms — Union Steel in 1902, Clairton Steel in 1904, and Tennessee
(’oul and Iron in 1907, as well as a few minor firms — but made no
overtures toward the bulk of its competitors. Presumably the initial
dlzc and consequent industrial efficiency of the new giant would have
left it with an open field in what was, in fact, a competitive steel
market.

Despite its several significant mergers and a policy of keeping
the price of iron ore high to exclude new competitors — it owned
about three-quarters of the Minnesota ore fields — United States Steel
during its first two decades held a continually shrinking share of the
dtccl market. In 1901-1905 United States Steel accounted for 62.9
per cent of the nation’s output of ingots and castings, as opposed to
52.5 per cent in 1911-1915 and 46.2 per cent in 1921-1925. U.S.
Steel accounted for 43 per cent of the nation’s pig iron production
in 1901, 43 per cent in 1910; 50 per cent of finished rolled products
In 1901, 48 per cent in 1910; 66 per cent of wire nails in 1901, 55
per cent in 1910. U.S. Steel’s share of the entire steel output of the
nation sharply fell from 61.6 per cent in 1901 to 39.9 per cent in
1920.

U.S. Steel’s decline was in large part due to its technological
conservatism and its lack of flexible leadership. The iron and steel
Industry as a whole was in a state of rapid growth and flux from
l‘M)() on, and accounted for 6.9 per cent of the total capital of manu-
facturing in 1900 but 11.4 per cent in 1919. Technologically, open-
hearth steel making replaced the Bessemer process; it accounted for

38

FAILURE TO RATIONALIZE INDUSTRY

28 per cent of the steel ingot and castings tonnage in 1 899, 79 per
cent in 1919. U.S. Steel’s basic investment in 1901 was essentially
in the Bessemer process, and its expansion program was limited in
the belief that its existing facilities were largely adequate. With the
exception of the establishment of its Gary, Indiana works and its
improvement of its Tennessee Coal and Iron property, U.S. Steel
failed to alter the location of its facilities sufficiently or to improve
its technology at a time when its competitors were rapidly moving
ahead. Moreover, the market for steel goods began shifting radically
to lighter steel products, a field which U.S. Steel was slow to enter.
The introduction of alloy steels and the continuous rolling mill, and
the increasing use of scrap rather than ore — U.S. Steel was heavily
committed to ore — only aggravated the firm’s decline. U.S. Steel, in
short, was a technologically conservative, increasingly expensive op-
eration that illustrates the inadequacy of the dominant theories on
the positive relationship between size and efficiency current since the
end of the nineteenth century.

U.S. Steel never had any particular technological advantage, as
was often true of the largest firm in other industries. Charles M.
Schwab admitted in 1901 that a monopoly could not be established
without exclusive patents. With the exception of the Bessemer proc-
ess, patents in the industry were traditionally used for collecting
royalties rather than restricting entry. But patents were important
to give a firm a lead in a field, as well as royalty income. When
Henry Grey offered a new process for making structural steel to U.S.
Steel, the corporation turned it down. Schwab, now president of
Bethlehem Steel, bought it and established his firm’s leadership in
that area.

In 1909 there were eleven firms other than U.S. Steel with at
least $25 million in assets engaged in some aspect of the steel indus-
try. Since this is approximately the figure at which peak industrial
efficiency was reached, each of these firms was capable of meeting
U.S. Steel on most terms. Moreover, in 1909 there were still 208
companies with blast furnaces, a decline of only 7 per cent since
1899. The number of companies with steel works and rolling mills
increased by one over the same period, to 446. The number of firms
engaged in making tinplate and template fell from fifty-seven to
thirty-one over the period of ten years, but the number of wire mills

39

lining purchased rods increased from twenty-nine to fifty-six. U.S.
Sled increased its total output 40 per cent during 1901-1912, thus
having a growth rate far lower than any of its older competitors.

If nothing else, the steel industry was competitive before the
World War, and the efforts by the House of Morgan to establish
control and stability over the steel industry by voluntary, private eco-
nomic means had failed. Having failed in the realm of economics,
the efforts of the United States Steel group were to be shifted to
politics.

The Oil
Industry

The alleged triumph of Standard Oil over the oil industry was
based in large part, as far as there was a triumph, on its ability to
extract rebates from the railroads on its shipments. Rebates provided
il with the capital and savings which were the key to its expansion,
mid Standard’s defenders and critics alike acknowledge their impor-
tance to Standard’s growth. Indeed, the secretive nature of the re-
bating made Standard among the most unpopular of trusts, and the
fact that it continued receiving rebates long after the passage of the
Interstate Commerce Act in 1887, and even after the passage of the
1 Ik ins Anti-Rebating Act of 1903, did little to enhance its popu-
larity. Rebating left Standard naked before public attacks and accu-
sations, and the company became the focus, standing almost alone,
of a substantial part of the antimonopoly sentiment at the end of the
nineteenth and beginning of the twentieth century. For many, not
the least of whom was Theodore Roosevelt, Standard was not merely
the reflection or example of the potential evils of trusts, but the evil
itself. 111 The rebate, Attorney General William H. Moody concluded
In 1906, was the key to Standard’s monopoly.

I lowever onerous the burden of rebates on the railroads — a bur-
den which the railroads usually passed to the other shippers and
eventually the consumer in the form of higher rates — it is neverthe-
less (rue that Standard treated the consumer with deference. Crude
mid refined oil prices for consumers declined during the period
Ntmulard exercised greatest control of the industry, 1875-1895, and

40

FAILURE TO RATIONALIZE INDUSTRY

rose thereafter along with prices for most consumer goods. Stand-
ard’s ignominious reputation was based primarily on its relations to
the independent oil producers: the company acted ruthlessly to keep
prices low at the expense of small producers. Ironically, had the pro-
ducers won, the consumers’ price of oil would have been signifi-
cantly higher. Indeed, the whole purpose of the Petroleum Producers’
Union of Pennsylvania in the late 1870’s and early 1880’s was to
raise prices by restricting output and controlling other producers
unable to withstand the enticing and often enriching prospect of
selling to Standard — “to make clear the way for a deliverance of the
business from the condition in which it has been placed by the irra-
tional course of producers, not less than by the unjust and unnatural
restrictions placed upon it by those who seek to monopolize its con-
trol.” 14 By controlling production, and creating their own monopoly,
the producers hoped to become independent of the most powerful
buyer, Standard Oil.

Standard never controlled a consequential share of the oil-
producing industry, but restricted itself to refining and sales. As a
producer of oil Standard accounted for 1 1 per cent of the output in
1906. Its somewhat ruthless relationship with the not altogether
altruistic producers has often erroneously been projected onto its
relations with competitive refiners. Standard attained its control of
the refinery business primarily by mergers, not price wars, and most
refinery owners were anxious to sell out to it. Some of these refinery
owners later reopened new plants after selling to Standard.

In 1899 Standard refined 90 per cent of the nation’s oil, and
reached the peak of its control over the industry. During 1904-1907,
however, Standard refined 84 per cent of the oil, and in 1911, the
year of the dissolution, it refined 80 per cent. The dissolution decree
left the component Standard companies in noncompetitive positions
with one another, and the combined share of refining of this con-
glomeration declined to 50 per cent in 1921 and 45 per cent in 1926.
It is clear that from 1899 on Standard entered a progressive decline
in its control over the oil industry, a decline accelerated, but cer-
tainly not initiated, by the dissolution. And until 1920 it faced un-
certainty and growing competition.

In 1 899 there were sixty-seven petroleum refiners in the United
States, only one of whom was of any consequence. Over the next
decade the number increased steadily to 147 refiners. Until 1900 the

41

only significant competitor to Standard was the Pure Oil Company,
formed in 1895 by Pennsylvania producers with $10 million capital.
It concentrated on the heavy lubricants field and grew despite Stand-
ard attacks, and after 1900 spread into other important phases of
refining. By 1906 it was challenging Standard’s control over pipe
lines by constructing its own. And in 1901 Associated Oil of Cali-
fornia was formed with $40 million capital stock, in 1902 the Texas
Company was formed with $30 million capital, and in 1907 Gulf
Oil was established with $60 million capital. In 1911 the total in-
vestment of the Texas Company, Gulf Oil, Tide Water- Associated
Oil, Union Oil of California, and Pure Oil was $221 million. From
1911 to 1926 the investment of the Texas Company grew 572 per
cent, Gulf Oil 1,022 per cent, Tide Water- Associated 205 per cent,
Union Oil 159 per cent, and Pure Oil 1,534 per cent. In 1926 all
of the Standard companies combined represented only 60 per cent
of the industry’s investment. This is not to say that the industry was
competitive in the 1920’s — important patent pools prevented that —
but that the decline of Standard was substantial and continuous.

Standard’s failure was primarily its own doing — the responsi-
bility of its conservative management and lack of initiative. The
American oil industry passed through a revolution from 1900 to
1 920, and Standard failed to participate fully in it. The first factor in
this revolution was the shift in the oil-producing areas from the East
to the West in a few short years. Standard had developed its power
over producers and railroads in the Appalachian and Lima-Indiana
oil-producing fields, which in 1900 accounted for 95 per cent of
America’s crude output. But in 1905 this area was producing less
limn 40 per cent of the crude oil, and by 1912 the new California
Ileitis and the midcontinent fields were each producing more oil than
the Appalachian, Lima-Indiana, and Illinois fields combined. Stand-
mi d had important investments in both of these new areas, but its
basic strength was in the East. Moreover, in the Gulf and Texas
mens, as well as in the California and the midcontinent fields, large
Independent producers had made sufficiently large fortunes to move
inti) refining. In the Texas and Gulf areas Standard was especially
•low to compete, and by the time it entered the fight it was hope-
lessly handicapped.

The second major cause of Standard’s decline was the radical
It misl'ormation of the uses for oil as a result of the advent of the auto-

42

FAILURE TO RATIONALIZE INDUSTRY

mobile and electricity. Standard made its early fortune primarily in
illuminating oils and kerosene, which accounted for 63 per cent of
the industry’s production in 1899. By 1919, however, electricity
had eliminated the demand, and this type of production accounted
for a mere 15 per cent of the industry’s output. Fuel oil spiralled
from 15 per cent to 52 per cent of the output over the same period,
and light oil products, including gasoline, increased from 14 per cent
of the industry’s output in 1899 to 27 per cent in 1919 and 48 per
cent in 1929. Between 1910 and 1925 the number of auto registra-
tions increased forty times, and gasoline and its distribution became
the central core of the industry. In this area the independent oil
companies led the field, pioneering in gas stations in the same way
that they had surpassed Standard in developing improved tank cars
and trucks as well as most of the major innovations in petroleum
chemistry. In a spiralling market for oil such as existed from the
turn of the century on, Standard, conservative and technologically
uncreative, was no match for the aggressive new competitors. The
dissolution decree of 1911 tended to knock Standard out of its
lethargy, and its component companies began merging with many
of the new independents to diversify and integrate in all regions.
Without the managerial skills the managers of these independents
brought with them to Standard, it is likely that the former near-
monopoly would have been even weaker in the 1920’s.

The oil industry, as well, had failed to establish stability and
integration via voluntary economic means in the period before World
War I.

The Automobile
Industry

The automobile industry is an excellent example of a fundamen-
tal technological innovation that led to a proliferation of wealth in
new hands and the creation of new centers of power in the economy.
And, in the Progressive Era, it was a source of additional intense
competition. 15

Entry into the auto industry was exceptionally easy prior to
World War I. Technological innovation and managerial skill, not

43

capital, were the key to success, though ample capital did not hinder
progress and it saved at least one wild speculation. The extremes,
while perhaps not fully representative, are interesting: Ford started
with $28,000 capital and succeeded, the Electric Vehicle Company
began with $20 million and failed. Many of the early auto manu-
facturers first started in the bicycle, carriage, or marine motor indus-
try and diversified into automobiles. Most auto makers were really
assemblers of parts produced by independent machine shops, and
by requiring customer deposits on orders and cash on delivery they
were able to shift the capital burden onto their parts suppliers. Only
one of die successful major auto firms — General Motors — was able
to attract significant investments from established investment centers
before 1912. The other major promotions of organized finance, such
as the United States Motor Company and the Electric Vehicle Com-
pany, failed. By 1926 seven of the eight major auto producers had
managed to obtain virtually all of their invested capital out of their
piolits, and to thereby establish a new center of economic power in
Ddroit. The output of autos increased from 19,000 in 1904 to 122,-
000 in 1909 and 1,557,000 in 1919, and in this type of market, with
demand high and brand loyalties as yet weak, new companies might
expect to survive, profit, and grow despite the furious competition.

Estimates on the number of companies entering the automobile
field vary sharply, but even the conservative data indicate a high
entry rate and competition. According to Motor in 1909, 502 com-
panies entered the auto business during 1900-1908, 273 of these
lailed and 29 entered still other fields. In 1904 there were 104 auto
builders, according to census data, and in 1909 there were 265. The
most conservative figures, compiled by Ralph C. Epstein, indicate
(fiat in 1903-1924 there were 180 companies actually making and
selling autos, as opposed to merely planning to do so. By 1926, 121
of this number died, leaving 59 in the field — still a rather substantial
number. It is only after 1920 that new entries into the industry drop
oil sharply. The mortality rate was high even among the major firms.
< >f i he (cn leading producers in 1903 only one was in the top ten in
1924, and of the ten leading firms in 1912 only five were in the top
leu in 1924. After 1912 the mortality rate declined and significant
concentration began taking place within the industry. At the same
lime, the standardization of parts and integration within each com-
pany resulted in comparative stability for the major firms.

44

FAILURE TO RATIONALIZE INDUSTRY

Given the incredible chaos in the industry, it is not at all sur-
prising that steps were taken to bring it under control. The Electric
Vehicle Company, among other things, acquired the Seldon patent on
gas cars, hoping to collect a royalty on every gas car produced on
the theory that they all infringed on its patent. The relatively power-
ful Packard Motor Company and Olds Motor Works were attracted
to the patent as a means of destroying existing fly-by-night companies
and preventing the creation of new ones. An Association of Licensed
Automobile Manufacturers was formed in early 1903 to collect a
royalty of 114 per cent of the retail price of each car made under
the patent, with most of the revenues devoted to imposing the asso-
ciation’s control over the industry. Ford was refused a license by
the association, and in late 1903 it opened a suit against him. Ford,
in the meantime, ignored the patent and in 1905 helped form a new
competitive association. In 1909 Ford lost his patent suit, but an
appeal brought him victory in January, 1911, and broke up the Sel-
don association.

The result of Ford’s legal victory was to destroy partially the
patent system within the auto industry. In 1915 the National Auto-
mobile Chamber of Commerce was formed by one hundred pro-
ducers to freely cross-license routine patents among themselves. This
policy lasted until 1935, and helped keep the industry competitive.
After 1935 the possibility of patent exclusion and market growth
became too great an attraction to resist, and the system largely col-
lapsed.

General Motors is an excellent example of the interaction be-
tween major finance and the auto industry. G.M.’s involvement with
organized finance at a time when all of the major auto firms were
largely financing themselves was mainly due to the personality and
grandiose ambitions of its first president, William C. Durant. Du-
rant’s philosophy was one of trying to absorb every promising com-
pany on the theory that in an industry in state of rapid flux any one
of them might eventually emerge as the leading manufacturer. He
started with Buick in 1904 and made sufficient profit to acquire
twenty more firms, most of which were failures. Until 1910, despite
earlier discussions with J. P. Morgan and Company, Durant largely
financed his own expansion. In 1910 a banking syndicate under
Kuhn and Loeb, Lee, Higginson and Co., and J. and W. Seligman
and Co., took over General Motors for a five-year period, ostensibly

45

to straighten out the financial chaos Durant had created. The syndi-
cate loaned General Motors $15 million, taking for itself at least
$2.5 million of it for floating the bond issues. “I consider it an ex-
cellent piece of business and the terms most liberal . . . Henry
Seligman wrote in September, 1910. 16 By the time the syndicate had
finished centralizing the company under the supervision of James
J, Storrow of Lee, Higginson, General Motors’ share of the Ameri-
can auto market had declined to 14 per cent in 1915 as com-
pared to 21 per cent in 1908. Durant, in the meantime, continued
Ills speculations, picked up Chevrolet and formed an alliance with
Du Pont to buy back General Motors, which they took over in late
1915. In 1920 J. P. Morgan and Company moved into the alliance
iukI Durant was pushed out, eventually dying in near poverty after
losing at least $100 million. After Alfred Sloan, an engineer, took
over as G.M.’s president in 1923, he reversed Durant’s and the
bankers’ policy of equating efficiency with centralization by intro-
ducing a decentralization policy and eventually making G.M. the
most profitable company in the industry. . . we would set up each
of our various operations as an integral unit, complete as to itself,”
Sloan wrote about his new departure. “We realized that in an insti-
tution as big as General Motors was even then, to say nothing of
what we hoped to make it, any plan that involved too great a con-
centration of problems upon a limited number of executives would
limit initiative, would involve delay, would increase expense, and
would reduce efficiency and development.” 17

The Agricultural
Machinery Industry

The ostensible and probably actual reason behind the formation
of the International Harvester Company in late 1902 was the intense
competition in the agricultural machinery industry. But competition
mid overexpanded production and sales facilities within the industry
hud existed for many years, and repeated efforts by the McCormick
Company and the Deering Manufacturing Company to merge led
to repeated failures. It was only when the Deering organization began
buying iron ore lands and building its own rolling mill in 1901, and

46

failure to rationalize industry

the interests of Morgan and the new U.S. Steel merger were threat-
ened, that progress was made, Gary directed the problem to the
attention of George W. Perkins, and he, in turn, brought the full
weight of the House of Morgan behind the existing merger senti-
ment. 18

The amount of water in the $120 million preferred stock issued
by the new corporation was slight, if there was any at all, mainly
because of the strenuous insistence of the McCormick family that the
stock be conservatively valued. But the new merger was singularly
unprofitable during its first years, and the McCormicks and Deer-
ings complained to the Bureau of Corporations in early 1907 that
the 3 and 4 per cent dividends that the company paid “have been a
disappointment to its organizers.” More important, the Deerings and
McCormicks soon began feuding with one another and nearly
brought about a dissolution of the merger and a restoration of the
separate companies. With dissension in the firm, inadequate profits,
and many of the former brands still competing with each other in
the industry at great cost of duplication, the company was forced
to adopt radical organizational changes in late 1906 by eliminating
the older managers inherited from the various firms. But the dupli-
cation of products continued until at least 1909. In 1910 the com-
pany finally began paying dividends on its common stock. Its rate of
earnings on its capital stock increased from 4.7 per cent in 1902 to
9.9 per cent in 1911.

But the company’s executives complained in 1907 that when In-
ternational Harvester was formed the “selling agents went to sleep,”
and spent a good deal of time competing with the company’s own
brands. 19 Their lethargy, stimulated by poor organization and over-
confidence, was most unfortunate for International Harvester. In
1903 the company sold 96 per cent of the binders in the United
States; it sold 87 per cent in 1911. Its share of the mower market
declined from 91 per cent to 75 per cent over the same period. And
its share of the harvester market fell from 85 per cent in 1902 to 80
per cent in 1911 and 64 per cent in 1918. At the time that Inter-
national Harvester was formed, Deere and Co., J. I. Case and Co.,
Oliver Farm Equipment Co., etc., were left out of the merger, and
these firms quickly developed a full line of agricultural machinery.
Although the number of manufacturers of agricultural implements
declined slightly over the preceding decade, in 1909 there were still

f)40 in the United States, And after 1915, when Allis-Chalmers di-
versified into tractors, auto companies also began entering the in-
dustry.

The Telephone
Industry

From its foundation in 1877 until 1894, the Bell Telephone
Company (A.T. & T.) had a virtual monopoly over the telephone In-
dus! ry. 20 Its position was based on its control of all crucial patents
necessary for the industry, and its conservative Boston owners and
managers restricted the extension of telephone service by financing
Itlos! expansion out of profits. In 1894, with many of the key patents

110 longer in effect, vast areas of the United States were without serv-
ice, and local capital was quite ready to finance independent com-
panies. Bell immediately adopted a policy of harassing the host of
■npiring competitors that sprang up in 1894 by starting suits against
llicm -twenty-seven in 1894-1895 alone — for allegedly infringing Bell
patents. It refused, in addition, to allow its subsidiary, Western
Kleclric, to sell equipment to the new firms.

T his policy failed largely because many of the new competitors
Inul important patents of their own and were aggressive in research
and development. At the same time, new firms, such as Kellogg
Switchboard, Stromberg-Carlson, and Automatic Electric Company,
apt img up to supply equipment to the new independents. The tele-
phone market, especially in the West and in rural areas, was avail-
able to virtually anyone ready to take it.

But the telephone independents had no access to ample supplies
nf capital. The independents recognized that mutual cooperation was
I'lticial if any were to survive, and in 1897 organized a national asso-
ciation designed to establish long distance service between their cities.

111 lute 1899, however, it appeared as if the independents would
finally receive major financial backing. The Telephone, Telegraph
and ( 'able Company was formed in New Jersey, with $30 million
capital, for the purpose of uniting the independent companies into
a national network. Supporters of the company included John Jacob
A'*loi, Peter A. B. Widener, Thomas Dolan, Frank Tilford, and

48

FAILURE TO RATIONALIZE INDUSTRY

other important public utility and oil industry figures — a formidable
group indeed. Unfortunately for the new venture, J. P. Morgan be-
came interested in the Bell System, though he did not control it at
this time, and was in a position to help the Widener interests in an
important gas utility war then going on in New York City. Widener,
W. I. Elkins, and Dolan were induced to withdraw from the new
telephone company, and it collapsed.

Despite massive capital support and the weaknesses of the inde-
pendents, A.T. & T. faced intense competition and began losing con-
trol of the industry. In 1902 there were 9,100 independent telephone
systems, and by 1907 there were 22,000. The number of phones in
the independent system expanded so rapidly that in 1907, the year
of peak relative strength for the independents, A.T. & T. had 3.1
million phones in service, the independents 3.0 million. The number
of independent phones continued to grow in subsequent years, but
by the 1920’s A.T. & T. far outstripped them.

The pressure of competition increased A.T. & T.’s need for capi-
tal, and from early 1902 to early 1907 J. P. Morgan was an impor-
tant minority faction within the board of directors; 1907 saw his
victory over Boston control. Morgan’s financial aid to the company,
however, was singularly unsuccessful in 1906-1908. His major con-
tribution was to reorient the company’s policy from competing with
the independents, where A.T. & T. had been most unsuccessful, to
attempting to merge with them. Theodore N. Vail, the new presi-
dent, asserted that the independents were all essentially promoters,
that large size and “centralized general control” created economies,
and that the public opposed competition in telephones. At the same
time, however, A.T. & T. began selling equipment to the independ-
ents and trying to cut off their access to capital. The independents
complained that A.T. & T. was treating them all as prospective
mergers and was trying to obtain control over the independent tele-
phone equipment companies.

By 1911 Vail was freely admitting that the policy of the com-
pany was to merge with independents. Reversing the earlier centraliza-
tion of its organization, which Vail granted was largely based on
accident, A.T. & T. broke up into eight to ten decentralized and
semi-autonomous divisions. Thus able to compete more successfully
with the independents, or to merge with them, A.T. & T.’s relative
strength began growing. In early 1913 Attorney General Wickersham

49

forced the company to dispose of Western Union, which it acquired
in 1909, to agree to cease its merger policy, and to connect with the
Independents for toll service — an order that was effective only until
1919 .

It is true that many of the independent telephone companies were
poorly run, inadequately financed, and based largely on the power
of local franchises. But the independents were primarily responsible
for the rapid growth of the telephone system, and even the growth
of Ihc Bell System. During its period of total monopoly, 1885-1894,
Hell’s phones increased at a rate of 6.3 per cent a year; but during
IH95-1906 they increased at an annual rate of 21.5 per cent. More-
over, by 1907 many of the independents were extremely well run
And profitable firms. In 1907, a year of business decline, all but a
few of the independents in Ohio, Indiana, and Illinois paid dividends
of 4 to 12 per cent on their stock. A.T. & T. subsidiaries did no
better, and many made smaller profits. Even more important, how-
ever, is the fact that independents forced telephone rates down and
treated a mass market for their services and for the industry. Com-
parative rate data is scarce, but every indication is that independent
rates were substantially lower than A.T, & T.’s. In Philadelphia, for
example, Keystone Telephone forced unlimited business service rates
down from $160 to $90 a year in a few years’ time. In 1895 Bell
received an average of $88 revenue for each of its stations, but it
received only $41 in 1914-1915. Vail admitted in 1911 that average
A.T. & T. rates were higher than those of the independents, even
where the independents had not fulfilled their initial promises of yet
lower rates. In 1911 A.T. & T., despite its higher rates, paid divi-
dends of only 6.3 per cent on its outstanding stock.

liven more significant is the fact that most of the important tech-
nological innovations in the industry were not produced by A.T.
& T., and this often aided the competitive position of the independ-
ents. Until 1907 engineering and research was consciously relegated
(o n secondary role in A.T. & T. Loading coils, the mercury-arc
repeater, and the three-element vacuum tube, for example, were all
developed by independent inventors, and A.T. & T. was forced to
buy them from the inventors.

The essential characteristic of the telephone industry in the first
decade of this century was its competition and rapid change. And
flic industry, with its insecurity and unpredictability, serves as an

50

FAILURE TO RATIONALIZE INDUSTRY

additional example of the basic trend in the American economy at
the beginning of this century away from centralization or monopoly.

The Copper
Industry

The history of the copper industry in this period is, in outline,
one of attempted consolidations and pools, and a continuous unsuc-
cessful effort to establish control over the industry. 21 The industry
was viciously competitive, and the mood is best illustrated by Henry
Seligman in 1885; upon hearing from his brother Albert in Montana
that one Murphy, a competitor, had been lynched, Seligman said:
“. . . as a rule I do not approve of taking the law into one’s own
hand, but in this instance I believe the result will prove very bene-
ficial.*’ 22

In the first important copper producing area, upper Michigan,
the Boston-owned Calumet & Hecla Company was able to control a
peak of 65 per cent of the region’s output in 1872. By 1883 it ac-
counted for only 56 per cent of the region’s production, and a number
of efforts to establish price and output pools in the 1880’s failed, in
part because of the growing competition from Arizona copper. In
1887 a world copper pool organized by French interests involved
many of the major American producers, but smaller American firms
took advantage of the higher prices it created to increase their out-
put, and the pool failed by 1889. Another effort was made in 1893,
but it also failed.

Since voluntary means proved inadequate, in 1899-1900 six new
combinations, stimulated by the doubling of the price of copper,
were formed to exploit approximately two dozen older mines. Five
of these combinations crashed. The most important copper con-
solidation of the period was the Amalgamated Copper Company,
formed in 1899 by Thomas Lawson, Henry H. Rogers, William
Rockefeller, and the Anaconda copper interests. The firm excluded
the largest Michigan producer, Calumet & Hecla, and instead of ex-
tending its control over the American copper industry, by 1904 its
share of U.S. output fell to about 40 per cent.

The efforts of private interests to control or consolidate the

51

copper industry were singularly fruitless. Calumet & Hecla, with a
conservative management, never seriously expanded into the Western
mining areas, and the Michigan copper industry’s decline eliminated
|| mn a serious factor in the industry. It produced 23 per cent of the
(HU Ion's copper in 1890, 13 per cent in 1900, seven per cent in 1910,
Mini 1 1 per cent in 1920. The Anaconda-Amalgamated Copper in-
terests accounted for 29 per cent of the nation’s output in 1890, 39
per cent in 1900, 25 per cent in 1910, and 12 per cent in 1920. The
Itellon’s four largest producers of copper declined from 76 per cent
Of llie output in 1890 to 66 per cent in 1900, 49 per cent in 1910,
Nhd 39 per cent in 1920.

The American copper industry is an excellent example of the
Hue of instability and compedtion during this period — instability due
In (he rapid shifts in the location of major deposits and the inability
Ilf nay one group to control all the factors of production.

'flic Meat Packing
Industry

"... here is something compared with which the Standard Oil
Company is puerile,” wrote Charles Edward Russell about the meat
pocking industry in 1905. 23 Russell’s ardcles were a typical reflec-
tion of the dominant contemporary view of the industry and an ex-
Drllriit example of the general confusion on “the trust” that pervaded
flioNl discussions of corporate concentradon at the beginning of this
Itelilury. Among other things that Russell claimed for the trust was
the power of absolute price-fixing and ownership of nearly all pack-
ing houses. The trust, if one looked beyond Russell’s dtle, in reality
iMiiisisted of the Big Six — something quite different than a totally
Unified Standard Oil. 24

There is no quesdon that the major meat packers cooperated
With one another; the real issue is whether they were able to control
the industry through their efforts. During the late 1880’s the key
Chicago packers — Armour, Swift, Allerton, Hammond, and Morris
*»- iiltempted to fix prices and divide the market. In 1893 Cudahy and
Ml I .ouis Dressed Beef and Provision were brought into the agree-
ment, and the pool met once a week to divide markets and adjust

52

FAILURE TO RATIONALIZE INDUSTRY

volume. From May, 1896, to January, 1898, the pool was unable to
function because of competition from a major outsider, Schwarz-
schild & Sulzberger, but it resumed operation after bringing the in-
truder into the pool. In May, 1902, the pool disbanded under a
Department of Justice injunction. For the most part, the pool was
largely a way for the packers to maintain peace among themselves
and to prevent imbalanced inventories of a perishable product in cer-
tain regions and during special times of the year. Since they had no
way of regulating the output and supply of meat, which was the
exclusive responsibility of thousands of stock raisers, it is doubtful
the pool had any significant control over meat prices.

Armour, Swift, and Morris proceeded during 1902 to plan a
merger of their own firms and other major packers, and collectively
purchased thirteen packing companies. But lack of capital, the nega-
tive advice of Kuhn. Loeb and Co. as to the advisability of the
merger, and public criticism destroyed the venture. The thirteen com
panics were then formed in 1903 into the National Packing Com-
pany, with Swift owning 47 per cent of the stock, Armour 40 per
cent, and Morris 13 per cent. Using National Packing as an um-
brella, the three firms regulated their own affairs in much the same
way as under the old pool. In 1912 the company was ordered dis-
solved, and the property was divided among the owners.

In 1900 most of the founders of the meat industry were dead
and their children were in charge of their companies. The results
were not altogether happy. Armour, Morris, and Schwarzschild all
suffered in the hands of the second generation, and this tended to
open the markets of the industry to additional competition. By 1906
competition within the industry was intense, and efforts to mitigate
it by creating the American Meat Packers Association, failed to
change the situation.

The price of meat rose consistently from 1890 to 1916, and this
fact was often cited as proof of monopolistic control in the industry;
but so did the prices of many other foods and the prices of all foods
and farm products combined. It was easier for the large packers to
obtain railroad rebates on large shipments than to try to have the
consumer pay for allegedly greater than average profits. Profits were
certainly substantial, but not because of higher than competitive
prices. As Edward F. Swift explained in 1905, “Even if these large
packers were acting in harmony [which they were!], they would not

53

foi nblc to control prices to any considerable extent, for the reason
(lint (here are a sufficient number of other individuals, companies,
nr corporations in the business, who would increase the volume of
llirlr business the minute abnormal profits appeared. Therefore they
Would gradually take away the business from the large packers,
ihoiild the latter attempt to buy their cattle unreasonably low or sell
(heir beef unreasonably high.” 25 In smaller towns the packers fre-
quently cut prices to meet local competition during certain times of
(he year when local beef was plentiful, but in most of these places
(he proportion of the total business done by the large packers was
generally quite low.

lintry into the packing industry was, and still is, comparatively
•any' The raw materials were freely available and could be produced
Virtually anywhere. The major difference in profits was the exploita-
tion of the byproducts of meat. Local slaughterers had less expense
pet head for refrigeration and freight, and usually had lower admin-
IHriilion, sales, and accounting expenses as well. For identical grades
Ilf meat, local meat often commanded higher prices than Western
Aleut. Liabilities were many as well, ranging from the cost of slaugh-
tering to economies of mass purchases of animals, but the assets were
lullleiently important to create serious competition.

The Bureau of Corporations’ study of the meat industry in 1905
txmcluded that the Big Six killed and sold about 45 to 50 per cent
tif the nation’s beef. Packing firms other than the largest three com-
pmiics accounted for 65 per cent of the meat output in 1905, and
7H per cent in 1909. The number of slaughtering and meat packing
fMnhlishments increased sharply during our period — from 1,080 in
IH99 to 1,641 in 1909. This increase in the number of packers by
,VJt per cent in one decade later had the greatest significance for the
political role of the meat industry in the Progressive Period.

Numerous other examples of the trend toward competition and
llic failure of mergers can be found in other important fields. In
Industries where rapid technological innovation was the key to suc-
Wiw, as in electrical manufacturing and chemicals, the major com-
panies began losing their share of markets and new entrants swarmed
III (luring the first decade of the century. Where the level of necessary
Investment was comparatively low, as in paper, textiles, and glass,
(lie number of new companies entering the field grew consistently

54

FAILURE TO RATIONALIZE INDUSTRY

and often spectacularly. And even when entries were not great, the
reallocation of market shares tended to deprive giant, well-capitalized
mergers of their supremacy. In several industries, tobacco being the
most notable, revolutionary changes in consumer tastes upset the
dominance of key firms. 28

Additional cases and examples abound, and there is no point in
tiring the reader with them. The trend is altogether clear: the manu-
facturing sector of the economy after the period of numerous mergers
in 1897-1901 was growing increasingly competitive. Private efforts
to establish stability and control within the various manufacturing
industries had largely failed.

The economic and industrial development of the United States
from 1890 until World War I assured a fluidity of conditions that
made economic rationalization and stability by voluntary means sub-
stantially impossible. 27 If the growth of big business was spurred by
the expanding urban markets, the consolidation of the economy into
a few hands was made impossible by the shifting locations of mar-
kets and resources — changes that meant few companies were suf-
ficiently well managed to hold on to their share of the market and
prevent new entries. America was too diverse, the economic resources
and opportunities too decentralized, to prevent the creation of an
American economic frontier. The idea that economic opportunities
were closed to middle-level wealth is not in accord with the facts.
There was sufficient product and service development — the distribu-
tion and service industries increase sharply in this period — to dispel
that notion.

Rapid technological innovation in this period often meant, as
Schumpeter suggested, innovation embodied in new firms. This was
certainly true in totally new industries, such as the automobile and
electrical manufacturing industries, where older wealth was loath to
speculate, and generally true within established industries as well.
New products, new methods of production, new markets, new sources
of supply, and new business combinations always affected the exist-
ing distribution of power and shares in older industries. Established
firms participated in this growth, but were rarely able to prevent in-
truders from grabbing their share as well. All grew, but the smaller
entries generally grew more rapidly. Internal financing out of profits
or rapidly decentralizing sources of cash made it possible for many

55

of llicse new entries to prosper quite independently of the larger
lluuncicrs whose major efforts went into the merger movement. It
In. of course, true that the economic and industrial mobility described
ilocs not warrant a belief in the Horatio Alger myth which has been
mo llioroughly analyzed, and largely disproven, by William Miller
and his associates. Occupational or educational mobility and income
m power mobility are two separate questions, however, and the bur-
den of Miller’s work has been in critically examining the oversimpli-
fied notions of apologists of the status quo on the social origins of
I lie business elite. Many of our new business leaders came from those
wealthier educational and occupational backgrounds capable of pro-
viding the prerequisite for that genuine, decisive mobility which is
Nignilicant in power and income terms. And the dynamics of eco-
nomic growth were such in the period that those individuals with the
educational criteria, social manners, and minimum capital could and
ol'lcn did obtain radically magnified positions of economic impor-
limcc without necessarily altering their precise family educational
nt jit (is or formal occupational designations. What should not be ig-
nored are the important distinctions within that broad category, “the
upper class.”

The failure of the merger movement to attain control over the
economic conditions in the various industries was brought about by
die inability of the consolidated firms to attain sufficient technological
advantages or economies of size over their smaller competitors —
contrary to common belief and the promises of promoters. The con-
solidations were formed not because of technological considerations
but primarily to create profits for promoters and incidentally be-
cause of the desire to eliminate competition. The amalgamation of
industrial facilities and resources on a massive scale often has the
sort of “efficiency” in a capitalist economy which is guided less by
purely technological considerations than by uniquely capitalist ones
economic warfare, private profit, market instabilities. But such
considerations are insufficient to prevent the entry of competitors
who often can operate successfully at levels of production well below
I hose of the larger combinations, and can exploit new opportunities
lor profit more ably. In these circumstances the power of a giant
corporation is based on transitory or variable factors, and the decen-
tralization movement within many large corporations is a concession
to the efficiency of the successful smaller competitors.

56

FAILURE TO RATIONALIZE INDUSTRY

Voluntary agreements among corporations in the form of pools
and agreements of every kind usually failed. Consolidations and
mergers were the next logical step, and also failed. The proliferation
of new competitors undermined the possibility of attaining economic
rationalization, with profit, by voluntary economic means. But
whether the passage of the control of an industry from one firm to
ten or twenty is relevant to the social, as opposed to the political, role
of business is quite another matter. To ignore the social function of
business, and its relation to the remainder of society, by concen-
trating on internal organizational and structural changes within in-
dustries would be a great error. Whether there are a few or many
companies does not change the basic control and decision-making
power of the institution of business in relation to the other important
classes of society, but only the detailed means by which that power
is exercised and certain of the ends toward which it is directed.

CHAPTER THREE □ □ □

THEODORE ROOSEVELT

AND THE
FOUNDATIONS OF
POLITICAL CAPITALISM,

1901-1904

all of the efforts of Morgan and the corporate promoters to
Introduce economic stability and control over various industries, and to
piul the bane of destructive and unprofitable competition, were head-
ing toward failure. Monopoly and business cooperation were raised to
the pinnacle of desired goals at the very time that popular and aca-
demic advocates of conservative Social Darwinism were attempting to
utilize the doctrines of Herbert Spencer and William Graham Sumner
ns u justification of the existing distribution of economic power and
Inissez faire. Laissez faire provided the businessman with an ideologi-
cal rationale on an intellectual plane, but it also created instability
mul insecurity in the economy. The dominant fact of American politi-

57

58 ROOSEVELT AND POLITICAL CAPITALISM

cal life at the beginning of this century was that big business led the
struggle for the federal regulation of the economy.

If economic rationalization could not be attained by mergers and
voluntary economic methods, a growing number of important busi-
nessmen reasoned, perhaps political means might succeed. At the same
time, it was increasingly obvious that change was inevitable in a politi-
cal democracy where Grangers, Populists, and trade unionists had
significant and disturbing followings and might tap a socially danger-
ous grievance at some future time and threaten the entire fabric of the
status quo, and that the best way to thwart change was to channelize
it. If the direction of that change also solved the internal problems of
the industrial and financial structure, or accommodated to the increas-
ingly obvious fact that the creation of a national economy and market
demanded political solutions that extended beyond the boundaries of
states more responsive to the ordinary people, so much the better. Nor
was it possible for many businessmen to ignore the fact that, in addi-
tion to sanctions the federal government might provide to ward off
hostile criticisms, the national government was still an attractive po-
tential source of windfall profits, subsidies, and resources.

Only if we mechanistically assume that government regulation of
the economy is automatically progressive can we say that the federal
regulation of the economy during 1900 to 1916 was progressive in the
commonly understood sense of the term. In fact, of course, this as-
sumption has dominated historical writing on the period, and histo-
rians have replaced the mythology of laissez faire with the mythology
of the federal government as a neutral or progressive intermediary in
the economy. This theory of the nature of political democracy and the
distribution of power in America has shaped our understanding of the
American political experience, our understanding of who directed it,
and toward what ends. At the same time, I will maintain, this perspec-
tive has overlooked the informal realities, has failed to investigate the
nature, motives and detailed character of each phase of the regulatory
process, and has led to a facile misunderstanding not only of the full
nature of the American political experience but also of the character
of American economic development. If the criterion is not the
presence or absence of government intervention but the degree to
which motives and actions were designed to maintain or preserve a
particular distribution or locus of power, the history of the United
States from Theodore Roosevelt through Woodrow Wilson is consist-

59

ontly conservative. Nor is the extension of federal regulation over the
economy a question of progressive intent thwarted by conservative ad-
ministration and fulfilment. Important business elements could always
be found in the forefront of agitation for such regulation, and the fact
that well-intentioned reformers often worked with them — indeed, were
often indispensable to them — does not change the reality that federal
economic regulation was generally designed by the regulated interest
U) meet its own end, and not those of the public or the commonweal.

The course of business action in the federal political sphere was
motivated by a number of crucial factors that too often have been
Ignored by historians. First in importance was the structural condition
within the economy, described in Chapters One and Two, which im-
posed the need for rationalization on many American industries. The
second is the fact that, in the long run, business has no vested interest
In pure, irrational market conditions, and grew to hate the dangerous
consequences inherent in such situations. Moreover, the history of the
relationship between business and government until 1900 was one that
could only inspire confidence in the minds of all too many business-
men. The first federal regulatory effort, the Interstate Commerce Com-
mission, had been cooperative and fruitful; indeed, the railroads them-
selves had been the leading advocates of extended federal regulation
after 1887. The ties between many political and business leaders were
close, not merely because Mark Hanna ran the Republican Party or
( irover Cleveland had been the partner of J. P. Morgan’s lawyer, but
for social and ideological reasons as well. As I shall show in the fol-
lowing pages, the business and political elites of the Progressive Era
hud largely identical social ties and origins. And, last of all, the fed-
eral government, rather than being a source of negative opposition,
always represented a potential source of economic gain. The railroads,
of course, had used the federal and local governments for subsidies
and land grants. But various other industries appreciated the desira-
bility of proper tariffs, direct subsidies in a few instances, government-
owned natural resources, or monopolistic privileges possible in certain
federal charters or regulations. For all of these reasons the federal
government was a natural ally.

Business reliance on the federal government may have been vari-
able in its emphasis, but it was consistent in its use. It was perfectly
logical that industrialists who had spent years attempting to solve their
economic problems by centralization should have been willing to re-

60

ROOSEVELT AND POLITICAL CAPITALISM

sort to political centralization as well. It is irrelevant whether one ac-
cepts, or dismisses, this phenomenon as a “conspiracy theory” of elites
working out of public sight, or describes it as “open channels” be-
tween personnel with similar values or contacts. Labels are irrelevant,
the phenomenon is not — and the facts still remain whether we like
them or not, or even if we are unaware of them. It was never a ques-
tion of regulation or no regulation among businessmen during the
Progressive Era, or of federal control versus laissez faire; there was,
rather, the question of what type of legislation at what time. On the
fundamental proposition that the government was to be utilized freely,
if not for someone else’s problems then at least for one’s own, there
was never any disagreement in practice, and frequently little in theory
as well. If American business did not always obtain its legislative ends
in the precise form it wanted them, its goals and means were clear.
And the dominant trend in the political decisions that were made, with
few exceptions, preserved the type of distribution of power and deci-
sion-making that also insured the power of regulated industries.

It is possible, of course, to find division in the ranks of “business”
if the opinion of a Morgan lawyer is balanced off by a resolution of
the Alabama Board of Trade. Such a procedure assumes that there are
no operational power centers and that one opinion is as influential as
another — a proposition almost disproven by stating it in a manner
which allows one to realize what it really alleges. What is crucial is the
opinion of key power groups, first of all, and the majority of all inter-
ests within a specific industry in which state or federal regulation is an
issue. And, as so often happens, even if groups in different industries
disagree on the broader theoretical propositions implicit in the general
regulation of the economy by the federal government, it is the opinion
of key power groups with interests in many fields that is the dominant
concern to anyone studying general trends. It is possible to state that
many businessmen — the drugstore operator being equated with the
steel company president — opposed government regulation most of the
time, even though most businessmen supported it at least when it was
to their interest to do so. The group that supported it consistently, the
men in the top echelons of finance and industry attempting to attain
economic centralization and stability, and with important political con-
nections, are the men who will primarily concern us here.

Outside of the realm of legislative and political activity there re-
mained the larger intellectual issue of accepted social values. The view

61

that government and business were equally valued in the Progressive
bra, or that government was given higher value, is incorrect. For busi-
ness held the ultimate reins of accepted ideology and defined the outer
limits of potential reforms; all major parties paid tribute to the basic
Institutional rights and interests of business, and to the mythology of
social values which allowed it to survive all onslaughts. More impor-
tant, the net effect of federal legislation, and usually the intent, was to
implement the economic-political goals of some group within an indus-
try. The pervasive reality of the period is big business’ control of
politics set in the context of the political regulation of the economy.

The Antitrust
Legacy

The antitrust legacy handed to Theodore Roosevelt was little more
than an amorphous social sanction — vague and subject to broad inter-
pretation, or to inactivity. Ignoring the pro-laissez faire predisposition
of the majority of intellectuals and academicians, the belief in competi-
tion as an abstract proposition was shared by the average middle-class
businessman. But this commitment, with all its fuzziness, never was
defined in any intellectually or politically meaningful way, and its ob-
scurity was reflected in the Sherman Act and the role of the “trust
Issue” in the political history of the 1890’s.

The Sherman Antitrust Act, written by Senators Sherman, Ed-
munds, Turpie, George, and others, was the only politically concrete
heritage of the antitrust movement bestowed on Roosevelt. It is diffi-
cult enough to give a legal definition of monopoly power, short of 100
per cent control, acceptable to any large group of economists. The
Sherman Act merely referred to a definition — the common law — which
was as vague and multidimensional as the last lawyer’s interpretation.
Senator John Sherman made it clear in March, 1 890, that

the object of this bill, as shown by the title is “to declare unlawful trusts
and combinations in restraint of trade and production.” ... It does not
unnounce a new principle of law, but applies old and well-recognized
principles of the common law to the complicated jurisdiction of our State
and Federal Government .... This bill does not seek to cripple combina-
tions of capital and labor, the formation of partnerships or of corpora-
tions, but only to prevent and control combinations made with a view to

<52

ROOSEVELT AND POLITICAL CAPITALISM

prevent competition, or for the restraint of trade, or to increase the profits
of the producer at the cost of the consumer. It is the unlawful combina-
tion, tested by the rules of common law and human experience, that is
aimed at by this bill, and not the lawful and useful combination. 1

The result, if not the intent, was clearly to establish a rule of reason
with a variable, if not ambiguous, definition of the “restraint of trade.”

Despite Sherman’s disclaimer that the law would not be applied to
trade unions or farmer organizations, many of his colleagues in the
Senate predicted that “It would be a weapon in the hands of the rich
against the poor,” and they anticipated the law’s subsequent use against
unions. 2 But the law, with its loose emphasis on “intent” rather than
specific actions, and its curiously abstruse lack of precision, was clearly
ready-made for free interpretation by some administrative agency. If
the Attorney General, Richard Olney, happened to be a former State
Street lawyer for the Boston & Maine Railroad, a member of “good
clubs,” and a director of railroads, the results justified the anxieties of
the skeptical Senators when Olney ordered federal troops to intervene
in the Pullman strike of 1894. And if the Supreme Court, deeply com-
mitted to laissez faire and a literalist interpretation of the law, saw the
Sherman Act as a justification for thwarting big business desires for con-
centration and cooperation — as in the Addyston Pipe decision (1899)
and the Trans-Missouri decision (1897) — the law could be as disturb-
ing to business leaders as to labor unionists.

For the small merchant, beleagered farmer, and unemployed worker
“monopoly” was a political slogan, inherited in part from the earlier
part of the nineteenth century when corporation charters were in fact
equivalent to monopoly privileges. And, with the advent of economic
concentration, vast aggregations of economic power, and a merger
movement, it seemed indeed as if “monopoly” and “trust” referred to
economic realities — or at least to the direction of things. In the politi-
cal sphere, however, the trends were more definite. While it is not my
purpose to give a history of the 1890’s, the least that can be said of the
political history of that “mauve decade,” as Thomas Beer termed it,
was aptly summarized in the exchange between Henry Clay Frick and
his partner, Andrew Carnegie, on the election of 1892: “I am very
sorry for President Harrison,” Frick wrote, “but I cannot see that our
interests are going to be affected one way or the other by the change
in administration.” “Cleveland! Landslide!” Carnegie replied. “Well
we have nothing to fear and perhaps it is best. People will now think

63

(lie Protected Manfrs. will be attended to and quit agitating. Cleveland
U pretty good fellow. Off for Venice tomorrow.” 3

Cleveland was indeed a pretty good fellow. Upon leaving the Pres-
idency in 1889 he entered a law partnership with Francis Lynde Stet-
mwi, J. P. Morgan’s lawyer and a power in the Democratic Party. After
( ’Icveland’s re-election Stetson remained an important business pipe-
line. to the President. Even more important was Richard Olney, who
actively encouraged his Boston friends — the Forbes, Higginsons, Endi-
eottN. Hallowells, and Jacksons — to send him their “observations and
recommendations” on the business situation. This they did, as William
Itndicott, Jr. phrased it, in order “to get as near as possible to the
■ource of power.” 4 McKinley, no less than Cleveland, welcomed the
Mid of the Republican counterparts of the Olneys and Stetsons, espe-
cially during the expensive campaign of 1896, when Mark Hanna was
responsible for raising the wherewithal to defeat William Jennings
Uryan.

r rhe Sherman Act was not, with rare exceptions, enforced through-
out the 1890’s. By the end of the century the issue could no longer be
Ignored, if only because it was becoming politically inexpedient to
continue to do so in the face of mounting concern over the growth of
big business. In June, 1898, Congress created the U.S. Industrial Com-
mission to study the entire economic structure and to take testimony
from those interested in the problem. Composed of House and Senate
members, but primarily of representatives of a variety of economic
organizations, the commission functioned for three years, and its nine-
loon volumes of testimony and reports are a goldmine of information
on every aspect of the American economy at the beginning of the
century.

The Industrial Commission accepted the necessity and inevitability
of industrial combinations, urging that “Their power for evil should be
destroyed and their means for good preserved.” More significantly,
the commission’s hearings provided a fonim for key businessmen on
Uic question of federal regulation. The majority of the sentiment was
for national regulation of some type in some specific area, and no in-
terest was as strong in this demand as Standard Oil. John D. Rocke-
feller, John D. Archbold, and H. H. Rogers of Standard called for a
national incorporation law and the federal regulation of accounts and
financial publicity. Inconsistent state regulation, the Standard spokes-’
men claimed, was vexatious. There should be. Rockefeller suggested,

64

ROOSEVELT AND POLITICAL CAPITALISM

“First. Federal legislation under which corporations may be created
and regulated, if that be possible. Second. In lieu thereof, State leg-
islation as nearly uniform as possible encouraging combinations of
persons and capital for the purpose of carrying on industries, but per
mitting State supervision. . . ,” B They were joined by Elbert H. Gary,
of Morgan’s Federal Steel, who called for full publicity of financial
data, and by John W. Gates and Max Pam of American Steel and
Wire, who wanted strict federal incorporation laws and a national
manufacturing commission to supervise incorporation, and by James
B. Dill, the promotion lawyer, who also favored federal incorporation.
There was, of course, si gnifi cant opposition to federal incorporation
from John R. Dos Passos, the promoter, and Francis Lynde Stetson,
but it is clear that important, if not dominant, big business sentiment
was very much in favor of federal regulation.

Standard Oil took its views seriously, and thought it crucial that
the Industrial Commission’s report not conflict with them. In early
1900 Senator Boies Penrose, the Republican political boss of Phila
delphia, sent Archbold an advance copy of the proposed Industrial
Commission report, and Archbold thought it “so fair that we will not
undertake to suggest any changes.” Having approved of the commis-
sion’s preliminary report, Archbold tried to get Penrose appointed
chairman of the commission when its original chairman died in mid-
1901. Penrose did not want the job, however, for the co mmi ssion
never interested him, and Archbold switched his support to Albert
Clarke, not a member of Congress, and rounded up the votes to
elect him. We do not want, Archbold wrote Mark Hanna, a radical
report making “political capital against the so-called trusts.” 6 There
was never, of course, a radical report.

By 1900 the politicians could no longer ignore the trust issue.
Sentiment within the House for action was very great, and the 1900
Democratic platform pledged the party “to an unceasing warfare in
nation, State and city against private monopoly in every form.” Even
the Republicans, after years of relative silence or indifference on the
issue, managed to “condemn all conspiracies and combinations in-
tended to restrict business, to create monopolies. . . . [We] favor such
legislation as will effectively restrain and prevent all such abuses.”
Roosevelt, running for the Vice Presidency, was allowed to carry the
burden of the trust issue in 1900, but McKinley, according to Roose-
velt, “was uneasy about this so-called trust question and was reflecting

65

in his mind what he should do in the matter.” 7 McKinley resolved to
press the issue with the Senate, after making changes in the reciprocity
agreements, but in September, 1901, two bullets fired at the President
by Leon Czolgosz left the matter to Theodore Roosevelt.

A New
President

During the first year of his presidency, Roosevelt moved as cau-
tiously on the trust issue as McKinley would have. He inherited Mc-
Kinley’s Attorney General, Philander Knox — formerly attorney for
Andrew Carnegie — and the equivocal Republican trust plank written
by Mark Hanna. Moreover, the Republican Party was still dominated
by Hanna. But, most important of all, Roosevelt had no firm convic-
tions on the question of antitrust policy. His Message to the New York
legislature on the question in January, 1900 was in large part a ver-
batim transcription of a letter that had been sent him by Elihu Root —
tin* lawyer of Thomas Fortune Ryan and other major capitalists — in
1 H-ccmber, 1899. He had never written on the question, his under-
Mnnding of economics was conventional if not orthodox, and his ex-
pressions on larger questions of social and economic policy were de-
cidedly conservative. As Governor of New York he had cooperated
handsomely with George Perkins and the New York Life Insurance
Company in quashing a bill passed by the Legislature limiting the
amount of insurance which could be carried by any state-chartered
company. Perkins, in return, was very active at the Republican national
convention in winning the vice-presidential nomination for Roosevelt,
n conscious step, as John Morton Blum rightly suggests, in advancing
I lie political career of Roosevelt. His relationship to Mark Hanna was
proper, if not cordial, and Hanna’s differences with Roosevelt were
those of conflicting personal ambitions and not of principle. Hanna
was as pro-union as one could be without giving up a commitment to
the open shop. He, like McKinley, favored moderate action — or state-
ments — on the trust issue, and he defended the economic advantages
of corporate concentration in much the same terms as Roosevelt later
did. The relationship between business and government was essen-
tially a pragmatic one. More fundamental questions did not have to be

66

ROOSEVELT AND POLITICAL CAPITALISM

discussed simply because neither Hanna nor Roosevelt conceived of a
governmental policy which challenged in a fundamental manner the
existing social and economic relationships. Both men took that rela-
tionship for granted. Both accepted the desirability of a conservative
trade union movement, responsible business, industrial conciliation,
and government action to stop the “menace of today . . . the spread of
a spirit of socialism” among workers. 8 Both allied themselves with the
pro-conservative union, pro-big business, welfare-oriented National
Civic Federation.

Roosevelt’s first Annual Message to Congress, on December 3,
1901, was carefully shaped to suit all tastes. Roosevelt discussed the
matter with George Perkins, now a Morgan partner, at the beginning
of October, and gave him a first draft for his comments and recom-
mendations. Perkins regarded the draft as perfectly acceptable, and
was particularly pleased by the section endorsing national rather than
state regulation; but Roosevelt apparently mistook a few critical com-
ments for opposition. He wrote to Douglas Robinson that he con-
sidered his older views on the topic to be “no longer sufficient.” “I
intend to be most conservative, but in the interests of the big corpora-
tions themselves and above all in the interest of the country I intend
to pursue, cautiously but steadily, the course to which I have been
publicly committed again and again. . . His old position in the New
York Legislature, on one hand, was insufficient, but his insistence on
carrying through “the course to which I have been publicly committed
again and again” indicates Roosevelt was in reality most unsure of his
course. To play it safe, however, he told Robinson he would “in strict
secrecy let you show such parts of it as you think best to prominent
men from whom we think we can get advantageous suggestions or
who may state objections. . . .” 9

By the time Perkins, Robert Bacon, another Morgan partner, and
assorted “prominent men” got through with the draft, virtually noth-
ing in Roosevelt’s Message warranted anxieties on their part. His state-
ment was a defense, if not a eulogy, of big business. “The process [of
industrial development] has aroused much antagonism, a great part of
which is wholly without warrant. It is not true that as the rich have
grown richer the poor have grown poorer. . . . The captains of indus-
try who have driven the railway systems across this continent, who
have built up our commerce, who have developed our manufactures,
have on the whole done great good to our people.” Success was based

67

on ability, and foolish attacks on corporations would hinder our posi-
tion in the world market. “It cannot too often be pointed out that to
(trike with ignorant violence at the interests of one set of men almost
Inevitably endangers the interests of all.” With the welfare of the na-
tion thus dependent on the security and stability of big business, Roose-
velt then attacked the “reckless agitator” and made it clear that “The
mechanism of modem business is so delicate that extreme care must
be taken not to interfere with it in a spirit of rashness or ignorance.”
Occasional evils that did arise, such as overcapitalization, could be
taken care of by publicity, and “Publicity is the only sure remedy
which we can now evoke .” 10 And, as a final gesture of goodwill to
business, Roosevelt advocated the supremacy of federal over state leg-
illation as the solution to the anarchy of dozens of distinct state laws.

Such caution was indeed gratifying. But Roosevelt’s next step was
less pleasing, if not surprising. Philander Knox, certainly no radical
before or after the Northern Securities Case, opened the case against
the Northern Securities Company on behalf of the federal government.
The details of the incident have been discussed in every standard his-
tory of the period. Suffice it to say here that the effort of the Harriman
railroad interests to reach a formal accord with the Morgan-Hill in-
terests to end internecine competition for the control of the Chicago,
Burlington & Quincy Railroad via joint ownership resulted only in
banning the formal device of the holding company. The actual owner-
ihip of the railroad by the two power blocs was not altered, nor did
they have to give up their railroad holdings, which still faced competi-
tion for three-quarters of their traffic. Preparation of the case was be-
gun secretly by Knox, and not even Elihu Root was consulted. Perhaps
It is true that Roosevelt wanted to assert the power of the Presidency
over Wall Street, or aggrandize his ego, but neither precedent nor the
subsequent events justify such a view. The agitation for action against
the company was intense in the Midwest, but this alone does not ex-
plain the event.

The Northern Securities Case was a politically popular act, and it
hus strongly colored subsequent historical interpretations of Roosevelt
hi a trustbuster. It did not change the railroad situation in the North-
west, the ownership of the railroads in that region, nor did it end coop-
eration among the Hill-Morgan and Harriman lines. Roosevelt never
Hiked for a dissolution of the company, or a restoration of competi-
tion. Knox’ motives can be evaluated quite explicitly, and Roosevelt’s

68

ROOSEVELT AND POLITICAL CAPITALISM

intentions in the matter can be judged largely on the basis of his sub-
sequent actions. Knox certainly never intended to restore competition
among the involved railroads, and his concept of alternatives never
reached a sufficiently articulate condition to allow either him or Roose-
velt to shape the course of events toward some significant change.
“The final solution,” Knox mused, “by which the good of combination
will be preserved for the community and the evils be excluded, may
combine a just measure of scope for the operation of both principles, —
competition, which is the healthful economic reminder of the law of
the ‘survival of the fittest,’ and combination which is the economic ex-
pression of the social force of cooperation; and both these forces may
therefore in this ultimate solution properly modify yet support each
other, rather than destroy and exclude.” Regulated combinations, he
predicted, will “show even greater common benefits.” 11 At about the
same time, Knox did not think there was anything incongruous in ask-
ing Henry Clay Frick, his former client and a major shareholder in
Morgan’s United States Steel, to invest large sums of money for him
in Pittsburgh banks.

The Northern Securities Case caught Wall Street by surprise, less
because it actually damaged concrete interests than because it seemed
to threaten the autonomy of the business decision-making process.
This is not to say that business did not desire government regulation
in certain areas, but this was surely not one of them. The classic ver-
sion of Morgan’s response has it that J. P. Morgan, who allegedly re-
garded the President as little more than a businessman in politics,
visited Washington on March 10, 1902, to discuss the threatened
change in Washington-Wall Street relations with Roosevelt. The dis-
cussion, according to the initial source, included the following dialogue:

“If we have done anything wrong,” said Mr. Morgan, “send your man
(meaning the Attorney General) to my man (naming one of his lawyers)
and they can fix it up.” “That can’t be done,” said the President. “We
don’t want to fix it up,” added Mr. Knox, “we want to stop it.” Then
Mr. Morgan asked: “Are you going to attack my other interests, the
Steel Trust and the others?” “Certainly not,” replied the President, “unless
we find out that in any case they have done something that we regard as
wrong .” 12

Certain aspects of the version are incorrect on their face value.
Neither Roosevelt nor Knox ever intended “to stop it” if by that term
it is meant to dissolve the basic structure of ownership or control in

69

any industry. The significance of the discussion has never beer, fully
appreciated. Morgan made an offer, and whether he consciously de-
cided for it at the time or not, Roosevelt operationally accepted it.
Indeed, the event was the most decisive in the subsequent history of
kinmcvelt’s trust policy.

In June, 1902, Perkins approached Roosevelt, Knox, Root, and
Others about the government designating “some safe plan for us to
adopt” in for min g the International Mercantile Marine Company.
Knox refused to comment on the scheme Perkins presented, but it is
avldcnt that the House of Morgan was quite serious about obtaining a
government dispensation for its undertakings — especially since, in this
I'nxr, a subsidy from Congress for the new shipping company was also
tlPNlrcd. Their belief that such a detente might be arranged was un-
doubtedly stimulated by Roosevelt’s speeches. “The line of demarca-
tion we draw must always be on conduct, not on wealth; our objection
|o any given corporation must be, not that it is big, but that it behaves
badly.” 13 At the same time, Roosevelt turned to Perkins for aid in
pausing his first important legislation for federal regulation of industry.

Agitation for a Department of Commerce had been carried on by
business organizations throughout the 1890’s. The idea was not par-
ticularly controversial and was especially welcomed by advocates of ex-
panded foreign trade; only lethargy and a desire to reduce expenditures
prevented earlier action. Big business sentiment for comprehensive
federal regulation eliminating troublesome state regulation also stimu-
lated interest in a federal agency that might lead to this end. Federal
Incorporation seemed to hold out the possibility of solving these prob-
lems, and “Affording the protection of the national government against
conflicting state legislation and local political enactments, and — what is
equally important — enforcing well-considered regulations and whole-
aomc restrictions incidental to national institutions. . . .” — as the im-
portant corporation lawyer, James B. Dill, phrased it. 14 Roosevelt’s
Second Message to Congress in December, 1902, couched in sooth-
ing, conservative terms, asked Congress to create a Department of
( ’ommerce. “A fundamental base of civilization is the inviolability of
property.” State regulation could not adequately prevent the misuse
of corporate power that was possible. In calling for national regula-
llon, Roosevelt insistently repeated that “Our aim is not to do away
will; corporations; on the contrary, these big aggregations are an in-

70

ROOSEVELT AND POLITICAL CAPITALISM

evitable development of modem industrialism, and the effort to de
stroy them would be futile unless accomplished in ways that would
work the utmost mischief to the entire body politic.” Making it cleai
where his loyalties lay, Roosevelt developed his commitment even fur
ther by suggesting, in a manner similar to trance’s comment on the
rich man and poor man in a democracy having the equal right to sleep
under the bridge at night, that he was not at all interested in a redis-
tribution of wealth or power. “We are neither for the rich man as such
nor for the poor man as such; we are for the upright man, rich or
poor.” 18 The problems incident to an industrial society, therefore,
could be solved by a higher personal morality, and nothing was more
conducive to personal morality than publicity.

To aid him in his efforts for regulation, Roosevelt turned to the
conservative Republican and business elements. Bring pressure to bear
on Speaker David B. Henderson to secure passage of the Department
of Commerce Bill, he wrote Perkins in late December, 1902, and have
Marshall Field see that Rep. James R. Mann, chairman of the In-
terstate and Foreign Commerce Committee, brings in “a thoroughly
sensible report” on the topic. 16

Perkins assured Roosevelt that he wanted the bill passed, and that
the wheels were already moving. His legislative agent in Washington,
William C. Beer, kept him fully informed of the progress of their joint
efforts. At the same time, Perkins had Senator Joseph B. Foraker of
Ohio ask Roosevelt about the possibility of additional trust prosecu-
tions, and the Senator could confidently report that “nothing will be
done at present, and I am confident nothing will be done hereafter.” 17

A bill to create a Department of Commerce and Labor passed the
Senate in January, 1902. It made no progress getting through the
House Committee on Interstate and Foreign Commerce until January,
1903, shortly after Perkins took up the task. Amended to the House
Bill, however, was a provision for a Bureau of Corporations — the Ad-
ministration’s potential agency for publicity on corporate affairs. The
Administration directed its efforts in January, 1903 toward the pas-
sage of the Nelson amendment and toward the defeat of the Littlefield
resolution. The Nelson amendment — written by Knox at Roosevelt’s
request — would allow the President to withhold information gathered
by the Bureau of Corporations, thereby using publicity as his major
tool for policing corporations, and would give the bureau the right to
obtain whatever testimony or documents it deemed necessary. Roose-

71

veil, in effect, could decide at his own discretion which corporations
lo attack through publicity. The Littlefield resolution, which passed
(he House, would have required all corporations engaged in interstate
commerce to file annual financial reports with the Interstate Com-
merce Commission. Its major provision barred from interstate com-
merce any corporation which used discriminatory rates or sought to
destroy competition. Roosevelt and Knox made their opposition to the
meusure known in early January: they preferred publicity to destruc-
tion, and the Littlefield Bill was stopped in the Senate. Roosevelt gave
nil of his support to the passage of the Nelson amendment to the
Department of Commerce Bill.

Passage of the bill was inevitable, but was given a sudden burst of
support by a faux pas committed by John D. Rockefeller, Jr. On Feb-
ruary 6 Rockefeller wired Senators Allison, Lodge, Hale, and Teller
(hat Standard opposed the Bureau of Corporations Bill. Roosevelt
seized upon the opportunity and called in the press, transforming
Rockefeller, Jr. into Rockefeller, Sr., and exaggerating the number of
Senators that had received the telegram — but his story was essentially
correct. This gave the measure an aura of radicalism to alienated Con-
lircssmen irritated by Roosevelt’s conservative opposition to the Little-
field resolution, and it undoubtedly made a few indifferent Congressmen
vote for the bill. On February 10 the House passed the bill 252 to 10,
and the next day the Senate casually approved the bill without debate
or a roll call. Roosevelt signed his bill on February 14, and later sent
one of the pens he used to George Perkins, telling him “Your interest
In the legislation was strongly indicated at different times during the
year or more of active discussion. . . ,” 18

The Bureau of Corporations Bill passed with conservative support
and was motivated by conservative intentions. Perkins had actively
campaigned for it, and the Department of Commerce aspect of the bill
was welcomed by all businessmen. “You know that I have the highest
hopes for the new Department, and sincerely believe that it will be of
very great practical use to our Government and our vast business in-
terests,” Perkins wrote Roosevelt in July, 1903. Despite Standard Oil
efforts to dissuade him, Senator Nelson Aldrich worked with Roose-
velt in the passage of the bill, and Roosevelt relied on him at various
times. Roosevelt, after all, had destroyed the radical Littlefield pro-
posal, and nothing in his presidency justified serious apprehension as
to what he might do with the new bureau. William Howard Taft,

72

ROOSEVELT AND POLITICAL CAPITALISM

ironically, chided Roosevelt about his reliance on the conservatives in
Congress, and the President’s rationale for his cooperation with them
was based not only on political opportunism but also on the inherent
desirability of the alliance. “My experience for the last year and a half
. . . has made me feel respect and regard for Aldrich as one of that
group of Senators, including Allison, Hanna, Spooner, Platt . . . Lodge
and one or two others, who, together with men like the next Speaker
of the House, Joe Cannon, are the most powerful factors in Congress.”
He might differ with them on specific questions, but they were “not
only essential to work with, but desirable to work with . . . and it was
far more satisfactory to work with them than to try to work with the
radical ‘reformers,’ like Littlefield.” 19

The Executive
and Business

Roosevelt’s cooperation with Aldrich continued as a matter of
course, and the President sought out the elder statesman’s advice on
crucial issues. “I would like to read over to you a couple of my
speeches in which I shall touch on the trusts and the tariff. ... I want
to be sure to get what I say on these two subjects along lines upon
which all of us can agree,” he wrote to Aldrich in March, 1903. At the
same time, George M. Cortelyou, the first Secretary of Commerce,
assured George Perkins “We are making good progress in the or-
ganization of the Department [of Commerce] on careful, conservative
lines.” 20 The assurance was based on fact. In February, immediately
after the passage of the law, Roosevelt asked James R. Garfield to as-
sume the post of Commissioner of Corporations and direct the new
bureau. Garfield’s assets, so far as Roosevelt was concerned, were
many, not the least of them being his tennis ability, which qualified
him for Roosevelt’s “tennis cabinet.” Son of President Garfield, civil
service reformer, active in Ohio Republican politics, Garfield also had
powerful friends among businessmen. Francis Lynde Stetson, a fellow
alumnus of Williams College who often saw Garfield at old school
functions, was consulted and gave the approval of the House of Mor-
gan. The Cabinet approved of the appointment, and although Hanna
did not care for Garfield, a meeting between the two and a profession

73

or conservative intent by Garfield won the political leader over. 21
Moreover, Garfield was friendly with important Standard Oil lawyers.

In August Roosevelt became concerned that the overcapitalization
of many recent corporate promotions, especially by Morgan, was the
ontisc. of the recent stock market panic. But throughout the year
Roosevelt retained the support of Republican conservatives, such as
I'ltilt, who advised his Wall Street friends to give direction to the es-
IPiilially conservative Roosevelt and try to control him. Roosevelt’s
Third Annual Message to Congress on December 7, 1903, confirmed
Platt's estimate of the President: Roosevelt stressed that the organiza-
tion of the Department of Commerce and the Bureau of Corporations
"proceeded on sane and conservative lines.” Legitimate business and
labor had nothing to fear from publicity, and the new organizations
would not only lead to conciliation between capital and labor but to a
lirtlcr position in foreign trade as well. “We recognize that this is an
Pin of federation and combination, in which great capitalistic corpora-
tions and labor unions have become factors of tremendous importance
III all industrial centers.” 22

The Bureau of Corporations’ major activity during its first year of
existence was to define its own legal functions in corporate regulation
nnd (hose of the national government as well. The issue of the federal
regulation of insurance, and whether it could be considered a form of
commerce, was, as we shall see, very popular among insurance men
mid a number of studies on the problem were prepared by the
bureau’s legal staff. So far as federal incorporation was concerned, bu-
reau experts concluded, Congress had the power to regulate corpora-
tions. Surely, it seemed, the Bureau of Corporations gave big business
111 He to fear and at least something to hope for. 23

Not a few businessmen remained unhappy with the President,
however. Roosevelt retained the support of such conservative Repub-
licans as Senator Joseph B. Foraker of Ohio, Aldrich, and Elihu Root,
but the Supreme Court decision in 1904 confirming the Northern
Securities prosecution, and the creation of a distinct appropriation —
however minute — within the Justice Department for antitrust work,
raised some apprehension. “I say to you that he has been . . . the
greatest conservative force for the protection of property and our in-
Mil utions in the city of Washington,” Elihu Root warned his peers
al the Union Club of New York in February, 1904. “Never forget
Ihat the men who labor cast the votes, set up and pull down govern-

74

ROOSEVELT AND POLITICAL CAPITALISM

ments. . . .” 24 The presence of men such as Root, Cortelyou, Paul
Morton, Taft, Knox and many other former members of the business
and social elite, as well as most of McKinley’s major appointees, still
testified to the conservative nature of the Administration. Moreover,
Roosevelt filed only three antitrust suits in 1902, two in 1903, and
one in 1904. There was perhaps a little bluster now and again, but
virtually no bite, and big business knew it.

Business had many reasons for optimism as far as the Bureau of
Corporations was concerned. And in December, 1902, Roosevelt in-
vited Judge Elbert H. Gary to the White House. The President had
never met the chairman of United States Steel, but the two men imme-
diately took a liking to each other, and saw each other and communi
cated frequently over the next seven years. This mutual confidence
was to be of vast importance.

In May, 1904, the Interstate Commerce Co mmi ssion found the
Morgan-controlled International Harvester Company guilty of obtain-
ing rebates from an Illinois railroad which it owned. Earlier in the
year Cyrus McCormick had told Commissioner Garfield that so far as
the Bureau of Corporations’ program was concerned, “. . . Interna-
tional Harvester was in entire sympathy with some program of this
sort.” 25 Instead of prosecuting it, Attorney General William H. Moody
and Garfield agreed to an International Harvester proposal that if
the company would in the future conform to the law after being told
when and where it was violating it, the right of prosecution would be
dropped; no formal means of fulfilling the agreement appears to have
been arranged. That George Perkins had organized the company, and
was the major Morgan representative in it, was probably of influence
in the bureau’s having so lenient an attitude. At about the same time,
Garfield discussed his plans for the bureau with Virgil P. Kline, coun-
sel for Standard Oil and a friend, and Kline relayed the information
to H. H. Rogers. The bureau wanted information, and Garfield inti-
mated it would not be used for purposes of prosecution. In June, 1904,
according to Garfield, Kline told him “the Standard Oil Company
would co-operate with the Bureau and would give me the information
that I desire . . .” for a bureau study. They agreed that “we would
confer with the representatives of the company” on all important
matters related to the study and bureau plans. 28

Garfield was rapidly formulating a course of action for the Bureau
of Corporations that was to operationally determine the nature of

75

Roosevelt’s trust policies. In March, 1904, in response to pressure
from livestock growers, the House passed a resolution calling for a
bureau investigation of beef prices and profits. Garfield did not want
the job, but was forced to proceed nevertheless. In April and in sub-
»cquent months, working through Charles G. Dawes of the Central
Trust Company of Chicago, Garfield met with the major Chicago
packers and assured them any information he obtained would remain
confidential and that he had no intention of harming their interests.
Even before a formal policy on the function of the Bureau of Corpora-
tions had been formulated, Garfield had moved to make the organiza-
tion a shield behind which business might seek protection. Informal
ddtentes and understandings were regarded sympathetically, even if the
luw was circumvented, and nothing would be done to harm business
interests.

The pending election did a great deal, of course, to mitigate any
radical action Roosevelt might have contemplated. In September and
October, 1904, Garfield and Roosevelt came to an understanding as
to the nature and function of the bureau. Garfield decided that “The
function of the Bureau of Corporations is not to enforce the anti-trust
laws,” or even to gather information indicating the need for their en-
forcement. Roosevelt was less clear as to whether its purpose was to
gather information to enforce existing laws or to show what additional
legislation might be necessary, but Garfield’s position was to prevail.
Information gathered by the bureau would be released only at the dis-
cretion of the President — as provided by the law — and even though
the beef information gathered by the bureau was not given to the U.S.
District Attorney of northern Illinois, then considering legal measures,
the names of the bureau’s informants were passed along. The bureau
was charged with investigating for purposes of possible legislation,
not enforcing existing laws, Garfield maintained, and its information
could not be used by other departments for purposes of prosecution.
"... the policy of obtaining hearty co-operation rather than arousing
antagonism of business and industrial interests has been followed,” he
concluded. 27

Garfield had, in fact, been most cooperative with business. And
ruther than recommending legislation, the bureau effectively served,
with its time-consuming procedures, as a block to legislation. “The
danger of remedial legislation,” Garfield wrote, “is that in its efforts
to strike down the abnormal, the unusual and the evil, it likewise

76

ROOSEVELT AND POLITICAL CAPITALISM

strike[s] down the normal, the usual and the good, hence extreme
remedial legislation results in disaster.” 28 Garfield was giving the bu-
reau a safe, conservative direction. Roosevelt was safe too, and so was
the Republican platform he ran on in 1904. “Combinations of capital
and of labor are the results of the economic movement of the age, but
neither must be permitted to infringe upon the rights and interests of
the people. Such combinations, when lawfully formed for lawful pur-
poses, are alike entitled to the protection of the laws, but both are
subject to the laws and neither can be permitted to break them.” Thus
having equated the power of the corporation with the power of a puny
craft union movement, the Republicans resigned themselves to the
movement of the age. Despite Roosevelt’s insistence that the Party
return a large donation from Standard Oil, the Roosevelt campaign
received large sums of money from Perkins, E. H. Harriman, and
businessmen convinced by Root — who was shaping many of Roose-
velt’s campaign speeches — and others in the Administration that the
President was doing his best for business. 29

It is possible, of course, that the commonly held conception of
Roosevelt as the anticorporate radical biding his time until he was
President by virtue of a ballot box, not an anarchist’s bullets, is valid.
But certainly nothing the President did or said in the months imme-
diately following his victory in 1904 justifies such an interpretation.
Quite the contrary, the remainder of Roosevelt’s presidency was essen-
tially a continuation of his first three years, adjusted for tangential
personal qualities and idiosyncracies. Perhaps Roosevelt may have con-
ceived of himself as an impartial, objective mediator between contend-
ing economic interests, seeking to mitigate class conflicts. “It would
be a dreadful calamity,” he wrote Philander Knox in November, “if
we saw this country divided into two parties, one containing the bulk
of the property owners and conservative people, the other the bulk of
the wageworkers and the less prosperous people generally.” Roosevelt
persistently returned to this theme — reform to him was a means of
preventing radical social change. And inevitably, as if by reflex, he
identified himself with conservatism and a benevolent paternalism.
“The friends of property, of order, of law, must never show weakness
in the face of violence or wrong or injustice; but on the other hand
... it is peculiarly incumbent upon the man with whom things have
prospered to be in a certain sense the keeper of his brother with whom
life has gone hard.” 80 It never occurred to Roosevelt, who dwelt on

77

this theme again in his Message to Congress on December 6, that the
existing distribution of power was based on some thin g more than tal-
ent and personal skill. “Great corporations are necessary, and only
men of great and singular mental power can manage such corpora-
tions successfully, and such men must have great rewards.” This did
not justify unabashed exploitation, because Roosevelt nominally placed
“good sense, courage, and kindliness” on a higher scale of priorities.
But translated into specific terms, this always resulted in a defense
of business interests, and a call for mutual charity between the un-
equal — “More important than any legislation is the gradual growth
of a feeling of responsibility and forbearance among capitalists and
wageworkers alike.” 31

Business was indeed gratified by the President’s and Garfield’s
conservatism. The bureau’s policy, Roosevelt announced in the only
aspect of his 1904 Message bearing on industrial corporations, was
“one of open inquiry into, and not attack upon, business, [and] the
Bureau has been able to gain not only the confidence, but, better still,
the co-operation of men engaged in legitimate business.” Garfield’s
first report for the bureau, in December, 1904 was similarly reassuring.

In brief, the policy of the Bureau in the accomplishment of the purposes
of its creation is to cooperate with, not antagonize, the business world;
Ihe immediate object of its inquiries is the suggestion of constructive legis-
lation, not the institution of criminal prosecutions. It purposes, through
exhaustive investigations of law and fact, to secure conservative action,
and to avoid ill-considered attack upon corporations charged with unfair
or dishonest practices. Legitimate business — law-respecting persons and
corporations — have nothing to fear from the proposed exercise of this
great governmental power of inquiry . 32

Moreover, Garfield came out for federal licensing of corporations, and
(his was especially welcomed by many big businessmen. “After the
first year,” Garfield reported later, “the business interests of the coun-
Iry appreciated that the Bureau was not to be used as an instrument of
improper inquisition. . . ,” 33 With the exception of Francis Lynde
Stetson, who did not like the idea of federal incorporation and repre-
sented only himself, spokesmen of business were delighted with Gar-
field’s report and few were apprehensive about what Roosevelt might
do next. Even Stetson was pleased with the other work of the bureau.
Seth Low, chairman of the National Civic Federation and an impor-
tant influence in Roosevelt’s trust, policies, approved heartily. Perkins

78

ROOSEVELT AND POLITICAL CAPITALISM

called Garfield up and congratulated him, and Garfield responded by
welcoming any suggestions he or his business friends might have. Busi-
ness communications were overwhelmingly in favor of Garfield’s re-
port and proposal. John D. Rockefeller, Sr. praised Garfield’s license
plan, according to Harper’s Weekly, because “the Federal govern-
ment would scarcely issue its license to a corporation without at the
same time guaranteeing to its beneficiaries an adequate degree of
protection.” 34

The Wall Street Journal editorialized on December 28, 1904:

Nothing is more noteworthy than the fact that President Roosevelt’s rec-
ommendation in favor of government regulation of railroad rates and
Commissioner Garfield’s recommendation in favor of federal control of
interstate companies have met with so much favor among managers of
railroad and industrial companies. It is not meant by this that much
opposition has not developed, for it has, but it might have been expected
that the financial interests in control of the railroads and the industrial
corporations would be unanimous in antagonism to these measures, which
would, if carried into effect, deprive them of so much of their present
power.

The fact is that many of the railroad men and corporation managers
are known to be in favor of these measures, and this is of vast significance.
In the end it is probable that all of the corporations will find that a reason-
able system of federal regulation is to their interest. It is not meant by
this that the financial interests who are in favor of the administrative
measures, approve of them exactly in the shape in which they have been
presented by the President and Commissioner Garfield, but with the prin-
ciple of the thing they are disposed to agree.

. . . Now as between governmental regulation by forty-five states and
governmental regulation by the central authority of the federal govern-
ment, there can be but one choice. . . . The choice must be that of a
federal regulation, for that will be uniform over the whole country and
of a higher and more equitable standard.

CHAPTER FOUR □ □ □ □

ROOSEVELT

AS

REFORMER,

1904-1906

IN late 1904, while on one of his periodic visits to the White
Utilise, Judge Elbert H. Gary of United States Steel and Roosevelt
Uttered into a debate on big business in America. At one point Gary
promised Roosevelt that “If at any time you feel that the Steel Cor-
Jttrnlion should be investigated, you shall have an opportunity to
> flnininc the books and records of all our companies, and if you find
inything in them that you think is wrong, we will convince you that
ure right or we will correct the wrong.” “Well, that seems to me
| |H be about the fair thing,” the President agreed. 1

It is likely that Gary was aware of a similar arrangement that had
| ben made with Internationa] Harvester, and perhaps even of the
»ne with Standard Oil. In January, 1905, the House of Representa-
tives ordered an investigation of U.S. Steel, and Gary had his oppor-
tunity. The matter was turned over to the Bureau of Corporations,

79

80

ROOSEVELT AS REFORMED

and Garfield dallied on the matter for most of the year. Without
anything more than the verbal understanding between Gary and
Roosevelt, in September, 1905, the bureau began obtaining a large
amount of data from U.S. Steel and interviewing Steel officials. Gar
field made requests for information to Gary, and finally decided it
would be best to formalize the understanding between the govern
ment and the Steel corporation. On November 2, 1905, Frick, Gary,
Garfield, and the President met at the White House. Gary freely dc
dared his company “desires to co-operate with the Government in
every possible way that is consistent with the proper protection of
the interests of its stockholders in their rights and property. . . He
was apprehensive, however, about the possible misuse of detailed
information the corporation was to supply. Garfield reassured him
Roosevelt only wanted information “upon which recommendations
for legislation might be made.” Gary requested that the bureau use
only publicity to punish the company in the event it found some
thing amiss. In return, Gary agreed formally to give Garfield full
access to the Steel books, and any disagreement on the use of the
material would be submitted to Secretary of Commerce Victor Met-
calf or, ultimately, the President himself. Garfield drew up a memo
on the understanding, and Gary and Roosevelt agreed with its coa
tents. 2 This cordial understanding was supplemented the following
week by mutual reassurances between Gary and Garfield. “I think
I should say there has been no disposition on my part to endeavor
to bind the Government to any promise or undertaking for the pro-
tection of our corporation,” Gary wrote. “On the other hand, the
public utterances of the President, and your statements to me from
time to time, have been such as to show conclusively to my mind
that there was no intention of doing or saying anything that would
injure our Corporation or disturb business conditions.” The gov-
ernment would not act to damage U.S. Steel’s interests, Garfield re-
sponded, “unless it was shown to be the Government’s clear duty
to take it.” 3

Roosevelt, in formalizing his understanding with United States
Steel, acted out of solicitude and not because it was the only way
he could obtain desired information. The bureau was legally able to
compel the production of evidence and witnesses, and the creation
of a detente with Steel, in effect, altered the character of the Bureau
of Corporations. More important, it allowed the bureau to become

81

a shield behind which certain select corporations might hide from
state and Congressional inquiries. To Garfield, the agreement was
“a long step ahead in fixing the work of the Bureau on the lines I
wish.” 4 Roosevelt had, in effect, institutionalized the policy of for-
malizing detentes with select companies. Morgan’s offer to send his
man to consult with the President’s man, International Harvester’s
proposal that it would be happy to obtain government advice if they
could avoid prosecution, and Standard’s offer of a detente were now
well on their way to at least partial embodiment in official policy.

The Bureau of Corporations’ delay in investigating U.S. Steel
during 1905 was in part caused by other concerns. Garfield was still
committed to the investigation of beef prices and profits the House
had forced upon the bureau. Garfield wished to keep the i nf ormation
he was gathering from the Department of Justice. Chicago packers
grew increasingly apprehensive of his ability to maintain his prom-
ises that the data would be kept confidential, and became more re-
luctant to supply information in light of the fact that Roosevelt was
less certain about the desirability of withholding information. In
January, 1905, much to Garfield’s embarrassment, Roosevelt ordered
the bureau to hand its beef data over to the Justice Department for
possible litigation. At the same time, the bureau rushed to complete
its report on beef, and on March 3, 1905, released it to the public.

Garfield released the report with much trepidation. “Now will
come the storm for its conclusions will not meet the popular demands
— but it is the truth -f- I care not for popular clamor,” he confided to
his diary. The report certainly did not meet the popular demand,
but it was largely accurate. It implicitly denied the widely-read
charges of the muckraker Charles Edward Russell that “here is
something compared with which the Standard Oil Company is puer-
ile.” 5 The industry, the bureau announced, was substantially com-
petitive, and the big packers were in no position to raise beef prices
indiscriminately. Despite the strong supporting data for such con-
clusions, the public was irate at not being told what it wanted to
hear, and the packers were angry at having their confidence be-
trayed. But the report was ultimately useful to the packers, and when
the Justice Department initiated proceedings against the Big Four
packers several months later, the bureau’s Report turned out to be
their best defense. Not only did it defend them from the accusation

82

ROOSEVELT AS REFORMER

that they were a monopoly and gouging the public, but the packers
had given the data to the bureau in return for a promise of immunity
— even though such a promise was not necessary.

Roosevelt was displeased with the unfavorable press response to
the beef report, and although he supported Garfield, he also re-
quested a supplementary report. Garfield handed the matter over to
Herbert Knox Smith, his chief aide and heir-apparent, who Garfield
thought “has shown himself well qualified to take care of things .” 6
Armour and Morris refused to provide Smith and his investigators
with additional data, and he decided against a subpoena. An addi-
tional report to the President was never made.

The question of the beef industry went to the courts, and the
bureau turned its attention to Standard Oil once again after allowing
its understanding with Standard of June, 1904, to lie dormant for
the time. In January and February, 1905, Garfield met with a group
of Standard executives, including H. H. Rogers, John Archbold, and
S. C. T. Dodd, and they decided to specifically investigate the nu-
merous allegations of Standard rebating and monopoly in Kansas and
the Midwest. Garfield was pleased. “Again I am in a position where
I may be of great service to the public,” he curiously concluded . 7
It was understood that information would be freely given the bureau
in conformity with the June, 1904, agreement. Garfield told Roose-
velt of the arrangement no later than January 21, 1905, and the
President approved. Roosevelt’s willingness to follow Garfield’s lead
was dictated by personal loyalties to his tennis partner, not by sym-
pathy with Standard. The Standard Oil Company was Roosevelt’s
sole explicit criterion of a “bad” as opposed to a “good” trust, a
definition that was later to assume great importance in the President’s
not too sophisticated thinking on the entire trust issue. Standard had
opposed the formation of the bureau, and Roosevelt exaggerated tins
opposition into a general Standard dislike for regulation of any sort.
In reality, Standard executives were early and leading advocates of
federal incorporation, which they saw as a means of protection
against burdensome state regulation. In August, 1904, Roosevelt
favorably toyed with a suggestion by Nicholas Murray Butler, presi-
dent of Columbia University, that it might be desirable to put the
Standard tag on the Democratic Party. Despite the fact that virtually
all of Roosevelt’s critical comments on ihe “trust issue” were really

83

•ducks on Standard specifically and not on the larger economic order
of which they were only a small part, during early 1905 he was will-
ing to support Garfield’s plan for an informal detente even with the
oil corporation.

The bureau’s investigation of Standard’s Midwest and Western
operations, especially in reference to railroad rebates, was begun in
eurnest immediately after the beef report was released. It was not
initiated in a spirit of hostility, but Standard quickly reneged on its
part of the agreement. During April, 1905, Garfield personally vis-
ited the Standard operations in the Midwest, and assigned investi-
gators to tour other areas. In May, however, bureau representative
Luther Conant, Jr. complained he was not receiving sufficient data
from Standard’s Pacific Coast subsidiary. Kline and Garfield met to
discuss the matter, and according to Kline they agreed that the bu-
reau would have access to all information save as it “in some manner
touched the question of freight rates,” but the company also insisted
that “a needless disclosure of private rights and interests ought to
lie avoided.” 8 Standard then tried to have the inquiry put off until
the fall of 1905, but complaints by bureau field investigators that
evidence was still being hidden and possible sources of testimony
nilenced alienated Garfield. The relationship between the bureau and
Standard Oil for the remainder of 1905 became increasingly strained
UN the bureau’s men closed in on Standard’s obvious and well-known
rebating practices. Garfield inevitably but reluctantly became highly
critical of Standard. It appeared as if Standard was indeed the epit-
ome of Roosevelt’s “bad” trust.

Roosevelt As
Reformer

1905 was not a year for victorious post-election antitrust action
by a President presumably thought by most historians to have been
chaffing for action; it was, instead, a year for more inactivity and
d&entes. Had Roosevelt been seriously interested in antitrust prose-
cutions he could have had more than five cases initiated by the De-
partment of Justice in 1905. But the President was unable to break
out of his traditional pattern of political alliances with big business

84

ROOSEVELT AS REFORM I'. K

conservatives. He did not continue his relations with them because
of a consciously articulated desire to work with conservatives as such,
but because he evaluated men and their motives on the basis of pci
sonal manners and character, and Ivy League men and moguls ol
industry seemed to have more polish and character than others hr
knew. Once convinced of the personal integrity and sincerity of such
men, he was loyal to them even in the most embarrassing situations.
And their word of honor, as in the case of Gary and Perkins, was
often enough to vindicate their actions. On this basis, good trusts
could be distinguished from bad ones, some corporations prosecuted
and others encouraged. Perkins and Gary could speak of labor
management cooperation and mutual justice at the very same time
that workers toiled twelve hours a day, seven days a week — at tin-
very same time that unions were ruthlessly smashed. Roosevelt took
their word at its face value and ignored the reality of a U.S. Steel
labor policy no less exploitive than Standard Oil’s.

1905 was a year of conservative consolidation within the Roose
velt Administration. Elihu Root, shortly after the 1904 election, had
decided to retire as Secretary of War and return to private law prac-
tice. In a whirlwind period of less than one year, Root took substan
tial part in the reorganization of the Northern Securities Company,
and in February, 1905, also at the behest of Morgan, he went to
work on the reorganization of the Equitable Life Assurance Society
shortly before Charles Evans Hughes descended upon it on behalf
of the New York Legislature to seriously embarrass Morgan, Root,
and Thomas Fortune Ryan, Morgan’s ally. Deeply involved with
Morgan, and with his reputation, conservative in any event, widely
challenged, Root was nevertheless invited by Roosevelt in July, 1905,
to become Secretary of State. Root accepted, and had Roosevelt
appoint Robert Bacon, a Morgan partner, a Harvard man, and a
friend of the President, Assistant Secretary of State. Big business was
delighted, especially since Root began applying his energies to open-
ing South America to United States commercial interests. Indeed,
Roosevelt saw nothing ironic or incongruous in appointing Root to
the Secretary of State’s post just as he was deeply involved in direct-
ing Morgan’s Chinese investments and the sale of the Canton-
Hankow Railroad. Roosevelt, in brief, was personally devoted to
Root. He considered Root as his leading and best qualified successor
to the Presidency until 1906, when he finally realized that Taft would

85

ftlnkr n better candidate by virtue of the fact he was not widely

ulcd as a “Wall Street man.” Moreover, Root rejected Roose-
Vpll'n urgings that he run. 9

Roosevelt’s personal loyalty to individuals, and his refusal to con-
lltler (he possibility of a conflict of interest, began with his strong
dependence on Philander Knox for the formulation and direction of
fell early trust program, and was to continue throughout his political
lircrr. To defend a friend and, incidentally, the reputation of his
Administration, he was quite willing to brush political dirt under the
(Mtrpct if he could. One example was his treatment of the Paul Mor-
Rjft airair in 1905. Morton was Secretary of the Navy and a former
Vice president of the Atchison, Topeka, & Sante Fe Railroad. In
February, 1905, the I.C.C. decided the Santa Fe was guilty of having
lU'cptcd large rebates while Morton was an executive there. Morton,
for bis part, often represented the railroad cause while in the Cabinet,
llul was an important business pipeline to Roosevelt. Among other
things, he had managed to convince Roosevelt of the desirability of
rnllroad pools. When the affair broke in June, Morton naturally sub-
nillted his resignation to Roosevelt. Although he was forced to accept
the resignation, Roosevelt insisted on publicly defending Morton: he
proclaimed his selflessness and asserted that Morton alone among
the railroad leaders had fought for the abolition of the rebate system
a proposition that conflicted with public knowledge. But Roose-
velt realized he also had to order a further investigation of the truth of
lire allegations against the Sante Fe — Attorney General William H.
Moody recommended he do so — and in ordering Moody to go ahead
he stressed, without access to new facts, that Morton was innocent
rind that only the Sante Fe, and not its individual officers, be investi-
gated. Moody, because of the case’s importance, assigned former
Attorney General Harmon to investigate the matter, and made no
secret of the fact that he did not wish to prosecute the Sante Fe.
Harmon, however, was contrary, and strongly advised prosecution of
the Sante Fe on contempt charges. Moody was embarrassingly forced
to hand the matter over to the courts for a decision, but since his own
attorneys were in charge of the prosecution, no judgment was brought
against the Sante Fe. Roosevelt’s direction of the Morton affair indi-
cates that personal loyalties, as well as his sense of public relations,
were deep indeed. 10

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ROOSEVELT AS REFORM I »

From the founding of the Bureau of Corporations until late 190<>
Garfield was a major, if not the dominant influence in directing
Roosevelt’s trust policies. In late 1906 Roosevelt appointed Charles
J. Bonaparte as his Attorney General. Bonaparte’s assets were varied
— he was a civil service reformer and a Baltimore attorney, and gave
Roosevelt a Catholic in his Cabinet. His qualifications for handling,
antitrust activity, however, were more restricted. His public utter
ances on the issue revealed what was to follow. “I regard the tend
ency of combination as an inevitable feature of modern civilization,”
Bonaparte told the Civic Federation of Chicago’s trust conference of
September, 1899. “Emphatically no legislative action in regulation
or restraint of combinations, whether by Congress or State legisla
ture, is desirable. Our public men (with, I need not say, some honor
able exceptions) are wholly unfit to deal with any such matters. The
attempt will be highly demoralizing to all concerned, the practical
results (except in the levy of blackmail) altogether nugatory.” 11 Now,
seven years later, Bonaparte was placed in charge of antitrust ac-
tivity as an honorable exception.

Garfield, presumably another honorable exception, continued to
maintain excellent relations with the business community throughout
1905, save with the big packers. United States Steel was happy with
its detente as a means of protecting itself from Congressional attacks.
Standard Oil, at least for the time being, appeared contented. In
October, a group of visiting bankers saw Garfield and were cordial.
Garfield was pleased and flattered: “Such conferences are valuable.
I must try to have more of them,” he confided in his diary. “. . . he
left the impression that the majority of businessmen are bad,” Gar-
field wrote commenting on an article by muckraker Ray Stannard
Baker; “that I do not believe.” His personal biases, needless to say,
were reflected in the bureau’s policies and, ultimately, in Roosevelt’s
as well. His annual bureau Report for 1905 strongly condemned
penal remedies and enforcement of the antitrust laws as a means of
regulating corporations. It was necessary to find the causes of indus-
trial evils in order to remedy them, and Congress would be better
advised to “provide a method by which reasonable combination may
be permitted.” A federal licensing law or federal incorporation would
provide such a method, for it would assure proper publicity, and
since “Existing business methods will be changed in accordance with

87

public opinion,” such publicity would give the public the facts. 12
Such a proposition pleased everyone and solved nothing.

The major concern of Roosevelt’s Annual Message to Congress
on December 5 was with railroad regulation, an area in which, as
! have tried to show elsewhere, he was eminently conservative.
“. . . these recommendations are not made in any spirit of hostility
to the railroads,” he insisted. As when discussing industrial corpora-
tions, Roosevelt identified the interests of “small investors, a multi-
tude of railway employes, wage workers, and . . . the public” with
those of the railroad tycoons. He never tired of reiterating that “In
our industrial and social system the interests of all men are so closely
Intertwined that in the immense majority of eases a straight-dealing
man who by his efficiency, by his ingenuity and industry, benefits
himself must also benefit others. . . . The superficial fact that the
sharing may be unequal must never blind us to the underlying fact
that there is this sharing. . . .” There were, of course, “selfish and
brutal men in all ranks of life.” There were capitalists who acted in
“disregard of every moral restraint,” and laborers full “of laziness,
of sullen envy of the more fortunate, and of willingness to perform
deeds of murderous violence. Such conduct is just as reprehensible
in one case as in the other.” Such equations reveal much of Roose-
velt’s values. The man of power who helps control the shape and
course of the economy is neutralized by powerless workers with “im-
proper” attitudes and by hypothetical murderers — which to Roose-
velt really meant militant unionists. Roosevelt was not willing to make
a blanket defense of business either privately or publicly, but func-
tionally he, along with all other members of the constituted establish-
ment, paid homage to it. “Business success, whether for the individual
or for the Nation, is a good thing only so far as it is accompanied by
and develops a high standard of conduct — honor, integrity, civic
courage.” Business success is concrete, visible, and Roosevelt thought
it a good thing. What is “honor, integrity, civic courage,” tangibly?
Roosevelt’s ability to take such rhetoric seriously, to wax hot over
platitudes, made him, for practical purposes, responsive to real busi-
ness needs and desires.

So Roosevelt’s 1905 Message, as far as it got down to real issues,
was as pro-business as his earlier statements had been. “I am in no
sense hostile to corporations. This is an age of combination, and any
effort to prevent all combination will be not only useless, but in the

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ROOSEVELT AS REFORM UK

end vicious, because of the contempt for law which the failure to
enforce law inevitably produces. We should, moreover, recognize in
cordial and ample fashion the imm ense good effected by corporate
agencies in a country such as ours, and the wealth of intellect, energy,
and fidelity devoted to their service, and therefore normally to the
service of the public, by their officers and directors.” 13 Specifically.
Roosevelt again rejected state supervision of corporations as either
possible or desirable. He thought the regulation of excessive over-
capitalization might be desirable, but he asked for no concrete legis-
lation. Instead, he restricted himself to the railroad regulation issue,
and then turned to the problem of the regulation of insurance. Gar-
field, in his Report earlier in the month, had declared that the Bureau
of Corporations had no constitutional or legal power to investigate
insurance, which was not strictly a form of commerce, and had rec-
ommended a Congressional act regulating insurance to test the prob-
lem in the courts. Roosevelt attacked state supervision of insurance
as inadequate and inconsistent. It led, he pointed out, to the cre-
ation of unscrupulous companies formed in one state and operat-
ing throughout the country. Roosevelt asked Congress to consider
whether it had the power to regulate insurance. But be couched his
request in such a manner as to leave no doubt that he desired federal
regulation of insurance.

Ignoring railroad legislation, the creation of the Bureau of Cor-
porations was the only significant step Roosevelt had taken on the
trust issue during over four years as President. From late 1905, how-
ever, his demands for legislation, as well as his taking actual measures
which have commonly been termed progressive, increased sharply.
The bureau had proven abortive, and whatever progressive goals it
might have achieved were frustrated by its genial Commissioner,
working, of course, with the approval of the President. After the
election of 1904, however, Roosevelt had few political obstacles or
inhibitions. He had been given a mandate by the electorate, and he
renounced the nomination for 1908. He now had the opportunity to
move in new directions, presumably to try to redress the balance of
economic power and to establish responsible public control over big
business. The standard historical interpretation maintains Roosevelt
did create a new frontier — perhaps not as radical as was once sup-

89

hmmxI, but nevertheless a system of regulation designed ultimately to
King big business under social control for public ends.

Insurance and
Regulation

The issue of the federal regulation of insurance during the Roose-
velt presidency has been virtually ignored by historians. Had they
been less delinquent, it is nevertheless likely that Roosevelt’s demand
fnr federal regulation would have been interpreted as another of his
efforts to create progressive legislation, to bring big business under
public control. The insurance industry, however provides an impor-
tant example of how an industry sought to solve its internal economic
problems by political means.

From the end of the Civil War and throughout this period the
Insurance business was characterized by cutthroat competition and
warfare equaled in few, if any, other fields. In 1 867 Henry B. Hyde
of the Equitable Life Assurance Society introduced “tontine” in-
surance: if a policy holder died before the end of the term of his
Insurance he received its face value; if he lapsed in his payments he
forfeited all; and if he reached the end of his term he received divi-
dends plus a share of the forfeited reserves. The scheme was a form
of gambling, and variations of it led to dividend wars, intensive com-
missions and raids on the sales forces of competitors, liberalized
terms, rebates, and a gradual elimination of the number of life insur-
ance companies until 1890. In the long run, the shrewd customer
could benefit most from the anarchic conditions that existed, and
given the enormous increase of insurance in force most conservative
life insurance leaders regarded the entire situation as mutually dam-
aging. At the same time, state regulation increased and was highly
variable from state to state, as well as financially burdensome. Volun-
tary truces between Equitable and its chief competitor, Mutual Life,
failed to solve the problems of aggressive outside firms and state
laws, and invariably collapsed. The insurance in force more than
doubled between 1876 and 1890, and then doubled again during the
next decade. After 1885, there was a growing number of new firms.
Indiana and Michigan discovered they could increase state revenues

90

ROOSEVELT AS REFORMER

by allowing irregularly managed firms to take out charters, and by
1 900 over three hundred fraternal insurance companies were in exist-
ence. Between 1890 and 1905 the number of life insurance com-
panies in operation more than doubled, although the numbers of new
entries and failures were even greater. 14

State supervision was frequently ignorant, and often corrupt as
well. But the anarchy within the industry was so great, and the vol-
ume of new entries so high, that some large insurance firms preferred
state regulation to no regulation at all. During the 1870’s, however,
a substantial and growing number of conservative insurance man-
agers became convinced that only federal regulation could impose
order on the industry, protect them from dishonest companies, and
mitigate competition. As early as 1 865 Congress had been petitioned
for a national incorporation act to save the insurance companies from
state regulation, and in 1868 a bill was presented to the Senate.
Additional efforts were made in the 1880’s, but they failed. In 1889
an insurance journal devoted exclusively to agitating for federal regu-
lation, Views, was founded in Washington. The great obstacle to
regulation, however, was not the reticence of Congress but the exist-
ence of the Paul v. Virginia decision of 1868, handed down by
Justice Stephen Field for the Supreme Court. Its thesis was simple:
insurance was a contract, a contract was not commerce, and the Con-
stitution empowered Congress only with the right to regulate com-
merce. Despite the Paul decision, insurance men by 1892 were ready
to obtain federal legislation and hope for a more favorable Court
decision afterwards. In 1892, John M. Pattison, a member of the
House and also president of the Union Central Life Insurance Com-
pany of Cincinnati, submitted a bill providing for a Bureau of Insur-
ance in the Treasury Department which could demand information
from insurance companies and had the power of subpoena. The
states were to continue issuing charters, but companies were to meet
federal standards thereafter. Companies were exempted from taxa-
tion save in the state in which they received their charter. Unhappily,
Congress was not moved by the plight of the insurance companies,
and although most insurance leaders supported the bill, they did not
work for its passage. By 1897, however, the deterioration within the
industry having accelerated, the Ohio Underwriter reported that “Offi-
cials of life companies the country over are wishing that the dream
of national supervision be realized.” Their dream came one step

91

dimer to realization when Senator Orville Platt of Connecticut intro-
duced a bill at the request of some of his important insurance con-
mltuents. The bill was identical to the earlier Pattison Bill, save that
It required Congress and not the insurance firms to pay the cost of
regulation, and allowed state taxation in areas where a company held
property as well as its charter. . . it is the duty of Congress to so
legislate from time to time, as to keep the laws of the country abreast
with modem ideas,” the influential insurance journal, the Spectator,
minounced. 15 The best way to test the constitutionality of the bill,
It concluded, was to pass it. Unfortunately for the industry, Platt’s
Bill, like its predecessor, died in committee.

If the federal government would not get into insurance, many
Insurance men reasoned, it would be necessary for them to get into
state politics to protect themselves. George Perkins, who as vice-
president of the New York Life Insurance Company had initiated
branch offices in the industry in the late 1880’s and helped his com-
pany become the largest insurance company by 1900, was familiar
with the importance of politics. He realized that competition was
costly, and his efforts at voluntary cooperation among the giant com-
panies had failed. New York Life’s legislative agent, Andrew Hamil-
ton, had spent about one million dollars in Albany over a ten-year
period, at least $235,000 of which even the company admitted went
for political payoffs. Perkin s was deeply involved in these political
machinations, and through them became close to Theodore Roose-
velt. William C. Beer, New York Life’s national political expert, was
involved in Republican politics in its cruder aspects, and went with
Perkins to the House of Morgan. Indeed, it was Beer who later
worked with Perkins on the passage of the Department of Commerce
Bill. In early 1900, however, Perkins’ special problem was a bill in
the New York Legislature limiting the amount of insurance any New
York chartered company could hold in force to $1.5 billion. It was
his work with Roosevelt, then Governor, in successfully opposing the
bill that attracted Perkins to the Rough Rider, and it marked the
beginning of their friendship. In June, 1900, Perkins threw his sub-
stantial weight at the Republican convention behind Roosevelt for
the vice-presidential candidacy.

The addition of Perkins as a Morgan partner in 1901 acknowl-
edged the fact that insurance was now an important aspect of Wall
Street, and the interlocking of insurance and finance in a massive

92

ROOSEVELT AS REFORMED

way begins about this time. The need for regulation increased along
with the growth of the big insurance companies. The proliferation ol
new insurance companies continued, and after 1905 accelerated even
more rapidly. State regulation, in addition to failing to prevent tin-
spawning of new companies, was increasingly costly. Direct fees col
lected from insurance companies by thirteen states alone In 1902
amounted to $3.6 million, while the expenses of supervision were a
mere one-ninth of that sum. Indirectly, moreover, the costs were
probably much greater, or at least insurance companies thought so.
Valued policy insurance laws, existing in many states, forced com-
panies to pay the entire face value of a policy in the event of fire
or loss, rather than the actual value of the loss. Many insurance men
were convinced that such policies increased fires, and that they were
forced to raise their rates to cover losses. 16

While the Department of Commerce Bill was being discussed in
1902, insurance interests unsuccessfully maneuvered to include a
Bureau of Insurance in the new department. Insurance men became
increasingly desperate over the growth of new and often dishonest
competitors, as well as the deluge of state legislation. In late 1903
the Committee of Insurance Commissioners prepared a bill to deny
the mails to insurance companies not authorized by the insurance
department of the state in which they were operating. The bill em-
bodying this rather oblique approach was introduced in the Senate
by John F. Dryden of New Jersey, who also happened to be president
of the Prudential Insurance Company and the leading spokesman for
federal regulation of insurance. Dryden’s bill was immediately op-
posed by major clients for insurance, who feared it might sharply
reduce the amount of insurance that could be obtained by large risks.
It, like all its predecessors, died a quiet death.

The Bureau of Corporations, however, offered hope to the har-
ried insurance industry. One of its first tasks was to investigate the
problems of the industry and to evaluate the legal issues involved in
federal regulation of insurance. In June, 1904, after completing a
number of legal briefs, the bureau sent one of its investigators,
Charles S. Moore, to interview leading Eastern insurance executives
and obtain their views on federal regulation. Arriving in Philadelphia,
Moore concluded that insurance opinion was unanimously in favor
of federal regulation, especially to counter the costs of valued policy
laws and, as Clarence E. Porter of Spring Carden Insurance phrased

93

It, federal regulation would “remove the harassing conditions and
onerous expenses of the various States and would reduce the super-
vision of the insurance companies to that of one Government De-
partment at Washington.” Moore found insurance sent im ent in New
York, where he talked to the leaders of about eight companies, en-
thusiastically in favor of federal regulation. 17

The realization that there was some hope for sympathetic action
by the federal government galvanized insurance industry support for
federal regulation. During the last two months of 1904 the industry
mounted a campaign to obtain legislation. “I earnestly hope that the
time is not far distant when, as a permanent relief from the needless
und increasing burdens of over-supervision, over-legislation, and over-
taxation ... we shall have an act of Congress regulating insurance
between the States,” Senator Dryden announced. 18 At the same time,
Dryden sent Prudential’s statistician to see Garfield to obtain data
to support federal legislation. A few weeks later, in line with a rec-
ommendation from Garfield, Roosevelt appealed to Congress in his
1904 Annual Message to consider whether it had the power to regu-
late insurance. The Spectator, the most influential of the insurance
journals and close to New York Life Insurance, was encouraged. It
had supported federal regulation for thirty years, and now had hopes
for seeing its goal attained. “It is not the public that requires further
supervision by the national government, but it is the insurance com-
panies, with their millions of dollars of capital, that need protection
from the inharmonious, exacting and often conflicting laws of fifty
different States.” To prove its point, the journal ran a symposium on
the question for insurance men, and concluded that nearly all wanted
strong national legislation. 18 The enthusiasm of the other insurance
journals for federal legislation ranged from mild endorsement to, in
most cases, very strong backing. John McCall and other major in-
surance presidents wrote letters of vigorous support for regulation
to the journals.

The insurance men would have preferred an even stronger public
stand for regulation from Garfield and Roosevelt, and an outright
declaration that insurance was in fact commerce and therefore open
to federal regulation. Despite Garfield’s hedging in public, behind the
scenes he worked closely with the strong pro-regulation group. After
consulting with Dryden’s statistician in November, 1904, in January,
1905, he met with James M. Beck, lawyer for the giant Mutual Life

94

ROOSEVELT AS REFORMER

Insurance of New York, who was preparing a comprehensive fed-
eral regulation bill to include a Bureau of Insurance in the Depart-
ment of Commerce. Beck, who was in contact with Senator Dryden
on the matter, accepted a number of Garfield’s proposals on the legis-
lation, and handed the draft to Dryden, who then introduced it in the
Senate. The new Dryden Bill was strong. Insurance companies were
compelled to file annual reports with the new bureau, and its books
and records could be demanded and inspected at company expense.
Each company had to file its charter and by-laws and post a $100,-
000 bond as a guaranty of faithful performance of duty. States could
supervise companies they chartered, but not those of other states,
and state laws for the purpose of raising revenues or harassing inter-
state commerce were sharply restricted. Unsafe companies could have
their charters revoked by the bureau. Neither Beck nor Dryden
seriously expected the bill to pass at the time, but by submitting it
and raising the general principle they hoped to prepare the ground
for its eventual passage.

In surveying the opinions of the big Eastern insurance men on
federal regulation, or the insurance journals, the Bureau of Corpo-
rations initially overlooked the Hartford insurance companies. Herb-
ert Knox Smith visited Hartford in early 1905, and discovered that
most presidents of the major companies favored federal regulation.
But the opposition, led by Senator Morgan Bulkeley, president of
Aetna Life Insurance, strongly feared that their New York competi-
tors would dominate a federal bureau by weight of money and influ-
ence, and exploit the advantage. Their fear was especially shared by
the fire insurance companies. Most important, this opposition was
articulate and organized. 20

Had it not been for the Equitable Life Assurance scandal, the
issue of federal regulation would have met an early death. Com-
peting factions struggling for the control of the Equitable in early
1905, and the effort of Morgan to take over the most cutthroat giant
in the industry, led to the investigation of the New York insurance
industry by a New York Legislative Committee under William W.
Armstrong. The Armstrong Investigation, which began in July, was
directed by a brilliant lawyer, Charles Evans Hughes, who was to
create a milestone in the history of the Progressive Era. In the proc-
ess of the investigation, which has been frequently discussed else-
where, the many years of cutthroat competition and shaky finances

95

in the industry were exposed. What was not appreciated at the time,
however, was that most important insurance men loathed a condi-
tion that had often been imposed on them quite as much as the right-
eous legislators disliked it. The public pressure for federal action was
never greater than during the Armstrong revelations, and it played
into the hands of the big Eastern insurance companies. In August,
1905, Roosevelt met with key government officials to discuss the
Dryden Bill and the legal status of federal regulation. But the Presi-
dent refused to take a public position at the time. In late August,
however, the cause of regulation received an additional boost from
the Committee on Insurance Law of the American Bar Association,
which concluded that federal regulation was constitutional and desir-
able if it could eliminate state valued policy and retaliatory laws.
Even the National Convention of Insurance Commissioners sup-
ported the constitutionality of federal regulation, and regarded it as
inevitable.

Despite the growing pressures for action and the insurance scan-
dals, Roosevelt was confused as to what should be done. Senator
Bulkeley opposed regulation, Senator Dryden favored it, and al-
though Roosevelt knew Dryden spoke for the mass of the big com-
panies, he used their disagreement as an excuse for avoiding action.
In November, however, Francis Lynde Stetson approached Garfield
about the matter. Stetson favored federal regulation but felt a con-
stitutional amendment would be required to give Congress jurisdic-
tion. He recommended Garfield investigate the views of a friend of
his, Carman F. Randolph, who had been consulted by several insur-
ance companies for a legal opinion on the matter and essentially
supported Stetson’s view. Randolph’s brief was published in the
Columbia Law Review in November, and Garfield considered it.
Randolph sympathized with the desires of the large companies for
federal regulation in order to escape state regulations, but he felt
the Supreme Court’s 1868 opinion that an insurance contract was
not commerce was correct. Short of a Constitutional amendment, the
only alternative for the federal government was to create a model
insurance law in the District of Columbia and the territories and hope
that the states would voluntarily duplicate it. Despite his Message
to Congress the following month calling on Congress to consider the
legal issues involved and stressing the desirability of uniformity
through national legislation, Roosevelt had been converted to the

96

ROOSEVELT AS REFORMER

Stetson-Randolph position. He had asked Root, Moody, and Knox
for their legal opinions on the matter, and only Root, who had re-
cently completed a stint reorganizing the Equitable, thought com-
prehensive federal regulation was legal. A model law, Roosevelt
reluctantly concluded, was the only practical alternative. 21

The small Midwest and Western insurance companies regarded
the movement for federal regulation as a menace, and organized to
fight back. In October, and again in December, 1905, a conference
of small Western companies met in Chicago to discuss technical
standards and, more important, to oppose federal regulation that was
“to be sprung by the large Eastern companies at any time they are
ready to attempt to crush the life out of the Western companies.” 22
Favoring state regulation, the small insurance companies realized that
standards would nevertheless have to be raised if they were to avoid
ultimate federal supervision. At the same time, the revelations of
the Armstrong investigation and the desire to retain at least some
control over the profitable insurance industry convinced the state
governments that a housecleaning was in order. In February, 1906,
at the initiative of Governor John A. Johnson of Minnesota and with
the endorsement of Roosevelt, about one hundred governors, attor-
neys general, and commissioners of insurance met at Chicago to
attempt to make state legislation uniform throughout the country.
The convention endorsed the idea of a model insurance code in the
District of Columbia, and appointed a committee of fifteen to pre-
pare a bill for Congress.

Roosevelt had no real commitment on the issue of insurance, and
freely admitted he had no knowledge of the field. The Armstrong
revelations, although they created political pressures for action, did
not terminate or complicate his friendly relationship with Elihu Root
and George Perkins, both of whom were seriously attacked by the
New York Committee. The issue of federal insurance regulation had
been forced to his attention by the large insurance interests. Al-
though he undoubtedly sympathized with the assumption that federal
regulation was superior to state control, the constitutional obstacles,
and his lack of serious interest in the issue, caused him to take the
path of least resistance. By endorsing the model law movement,
Roosevelt undercut the Dryden Bill and backed Stetson’s alternative
to comprehensive federal control or state anarchy.

In late March, 1906, the House Committee on the Judiciary de-

97

pitted that Congress did not have the power to control or regulate
liuuiunce, thereby killing any chance of extensive federal control.
A frw days later Roosevelt elected to support the model bill proposal
tlrnlicd by the committee of fifteen chosen at the Chicago insurance
wmvcntion in February. On April 17 he sent a special message to
Congress endorsing the proposal, also admitting “I have no expert
I fwniliarity with the business.” 23 The Senate supported the House
Interpretation of the constitutionality of federal regulation, and finally
?' killed the Dryden Bill. But both branches of Congress were unre-

| iponsive to Roosevelt’s disinterested plea for a model law in the

tJlMrict of Columbia, and the bill implementing it was never reported
I out of committee.

i

I Having fought to a deadlock, the advocates of state versus fed-

| frnl regulation re-formed their ranks. But the pressure for action
disappeared as Roosevelt and the public turned to other issues.
Moreover, in 1907 about one dozen states enacted the model law
for insurance despite the failure of the federal government. In Sep-
tember, 1906, the American Life Convention was formed by thirty-
four small Western and Southern companies, representing a mere 4
per cent of the legal life reserves, to fight federal regulation and work
for uniform standards and procedures. The issue was never joined.
Eastern life insurance remained strongly in favor of federal regula-
tion of insurance, but Roosevelt and Taft dropped the issue alto-
gether. The problems that in the past had stimulated the demand for
federal regulation only grew greater. Between 1905 and 1915 the
number of life insurance companies alone more than doubled, and
mute taxes, licenses, and fees in 1907 amounted to $11 million — or
2. 1 per cent of premium income. During the Wilson Administration
the issue was consciously allowed to lie dormant, despite a campaign
by Darwin P. Kingsley, president of New York Life, to unite the
hundreds of presidents favoring federal regulation behind him. In
1914, when Kingsley managed to get a joint resolution before Con-
gress providing for a Constitutional amendment, his effort had no
public support. What was necessary was another public scandal simi-
lar to the Equitable revelation that would allow a President to take
decisive “progressive” action to sadsfy the public — and the large
insurance companies. The scandal never occurred, and the issue of
the federal regulation of insurance died. 2 ' 1

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ROOSEVELT AS REFORMER

Meat Inspection:

Theory and Reality

In October, 1904, a young man named Upton Sinclair arrived
in Chicago with a $500 stake from Fred S. Warren, editor of The
Appeal to Reason. After seven weeks of interviews and observation
in the stock yard area, Sinclair sent back stories to Warren on the
working conditions, filth, and gore of the packing industry, and his
novel The Jungle electrified the nation, spreading Sinclair’s name far
and wide and, finally, bringing the Beef Trust to its knees. The na-
tion responded, Roosevelt and Congress acted by passing a meat
inspection law, and the Beef Trust was vanquished. Or so reads the
standard interpretation of the meat inspection scandal of 1906.

Unfortunately, the actual story is much more involved. But the
meat inspection law of 1906 was perhaps the crowning example of
the reform spirit and movement during the Roosevelt presidency, and
the full story reveals much of the true nature of progressivism.

Alas, the movement for federal meat inspection did not begin
with the visit of Sinclair to Chicago in 1904, but at least twenty years
earlier, and it was initiated as much by the large meat packers them-
selves as by anyone. The most important catalyst in creating a
demand for reform or innovation of meat inspection laws was the
European export market and not, as has usually been supposed, the
moralistic urgings of reformers. And since the European export mar-
ket was more vital to the major American meat packers than anyone
else, it was the large meat packers who were at the forefront of reform
efforts.

Government meat inspection was, along with banking regulation
and the crude state railroad regulatory apparatus, the oldest of the
regulatory systems. In principle, at least, it was widely accepted. The
major stimulus, as always, was the desire to satisfy the European
export market. As early as December, 1865, Congress passed an act
to prevent the importation of diseased cattle and pigs, and from 1877
on, agents of the Commissioner of Agriculture were stationed in vari-
ous states to report on diseases.

In 1879 Italy restricted the importation of American pigs because
of diseases, and in 1881 France followed suit. Throughout the 1880’s
the major European nations banned American meat, and the cost to

99

•he large American packers was enormous. These packers learned
very early in the history of the industry that it was not to their profit
In poison their customers, especially in a competitive market in which
the consumer could go elsewhere. For the European nation this
meant turning to Argentine meat, to the American consumer to an-
olher brand or company. The American meat industry, as indicated
111 Chapter Two, was competitive throughout this period, mainly be-
cause the level of investment required to enter packing was very
mnall and because there were no decisive economies in large size.
In 1879 there were 872 slaughtering and meat packing establish-
ments, but there were 1,367 in 1889. Chicago in the late 1870’s had
established a municipal system of inspection, but it left much to be
desired and was weakened over time. In 1880, after England banned
llic importation of cattle with pleuropneumonia, the livestock growers
Initiated a campaign for legislation designed to prevent the spread
of the disease. The Grange and many state legislatures joined the
movement, and in 1880 Rep. Andrew R. Kiefer of Minnesota intro-
duced a bill to prohibit the transportation of diseased livestock from
Infected to clean areas. Similar bills designed to halt the spread of
pleuropneumonia followed, but failed to gather sufficient support.
In late 1882, however, exposes in the Chicago papers of diseased
meat led to reforms in municipal inspection, and the major packers
cooperated with the city health department to set up more examining
stations to root out disease. Other cities also created inspection sys-
tems at this time, although they varied in quality.

Despite the failure of Congress to legislate on the matter, in 1881
the Secretary of the Treasury created an inspection organization to
certify that cattle for export were free of pleuropneumonia. Such
limited efforts and haphazard municipal inspection, despite packer
support, were inadequate to meet exacting European standards. In
March, 1883, Germany banned the importation of American pork,
cutting off another major export market. Congress was forced to meet
the threat to the American packers, and in May, 1884, established
the Bureau of Animal Industry wi thin the Department of Agricul-
ture “to prevent the exportation of diseased cattle and to provide
means for the suppression and extirpation of pleuropneumonia and
other contagious diseases among domestic animals.” Despite the re-
search and regulatory activities of the bureau, which by 1888 cost
one-half million dollars per year, the Department of Agriculture from

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ROOSEVELT AS REFORMER

1885 on began appealing for additional federal regulation to help
improve exports to Europe. Its major impetus was to fight Euro-
pean restrictions, not to aid the American consumer, and in doing
so it effectively represented the interests of the major American pack-
ers who had the most to gain from the Department’s success. 25

Rather than improving, the situation further deteriorated with a
hog cholera epidemic in 1889 worsening the American export posi-
tion. Congress acted to meet the challenge, and in August, 1890,
responding to the pressure of the major packers, passed a law pro-
viding for the inspection of all meat intended for export. But since
provision was not made for inspection of the live animal at the time
of slaughter, the foreign bans remained in effect. Desperate, in
March, 1891, Congress passed the first major meat inspection law
in American history. Indeed, the 1891 Act was the most significant
in this field, and the conclusion of the long series of efforts to protect
the export interests of the major American packers. The Act provided
that all live animals be inspected, and covered the larger part of the
animals passing through interstate trade. Every establishment in any
way involved in export was compelled to have a Department of
Agriculture inspector, and violations of the law could be penalized
by fines of $1,000, one year in prison, or both. Hogs were required
to have microscopic examinations as well as the usual pre- and post-
mortem inspections. The law, in brief, was a rigid one, and had the
desired effect. During 1891 and 1892, prohibitions on importing
American pork were removed by Germany, Denmark, France, Spain,
Italy, and Austria.

The Act of 1891 satisfied the health standards of European doc-
tors, but greatly distressed the European packing industry. Slowly
but surely the European nations began imposing new medical stand-
ards in order to protect their own meat industries. Major American
packers failed to appreciate the retaliatory tactics of their foreign
competitors, and protested to the Department of Agriculture, which
pressured the Department of State into helping it defend the vital
interests of the American meat industry. The government’s meat in-
spection organization, in the meantime, gradually extended control
over the greater part of the interstate meat commerce, and in 1895
was aided by another act providing for even stronger enforcement.
In 1892 the Bureau of Animal Industry gave 3.8 million animals
ante- and post-mortem examinations; it examined 26.5 million ani-

B I 0 t i O 7 : . A

iKiii'ir.; 7 : I

UHiVERSiOADh

101

mals in 1897. It maintained 28 abattoirs in 12 cities in 1892, 102
abattoirs in 26 cities in 1896. The inspection extended to packaged
goods as well, despite the rumors that American soldiers during the
Spanish- American War were being served “embalmed meat” that
damaged their digestive systems — rumors strongly denied by Harvey
W. Wiley, the leading American advocate of pure food legislation.
By 1904, 84 per cent of the beef slaughtered by the Big Four packers
in Chicago, and 100 per cent of the beef slaughtered in Ft. Worth,
was being inspected by the government; 73 per cent of the packers’
entire U.S. kill was inspected. It was the smaller packers that the
government inspection system failed to reach, and the major packers
resented this competitive disadvantage. The way to solve this lia-
bility, most of them reasoned, was to enforce and extend the law, and
to exploit it for their own advantage. They were particularly con-
cerned about the shipment of condemned live stock to smaller, non-
inspected houses, and applied pressure on the bureau to stop the
traffic. When the Association of Official Agricultural Chemists
created a committee in 1902 to determine food standards for meat
products, the major meat companies cooperated with the efiort and
agreed with the final standards that were created. 28

When Sinclair arrived in Chicago in late 1904 to do a story for
The Appeal to Reason he was primarily interested in writing a series
on the life of Chicago’s working class. His contact with the local
socialists led him to Adolph Smith, a medically qualified writer for
the English medical journal, The Lancet, and one of the founders of
the Marxist Social Democratic Federation of England. Smith proved
to be of great aid to Sinclair, supplying him with much information.
In January, 1904, Smith published a series of articles in The Lancet
attacking sanitary and especially working conditions in the American
packing houses. Smith’s series was hardly noticed in the United
States — certainly it provoked no public outcry. In April, 1905, Suc-
cess Magazine published an attack on diseased meat and packer use
of condemned animals. This article also failed to arouse the public,
which was much more concerned with alleged monopoly within the
meat industry than with sanitary conditions.

The inability of these exposes to capture the attention of the pub-
lic was especially ironic in light of the unpopularity of the packers.
Charles Edward Russell had just completed his series in Everybody’s

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ROOSEVELT AS REFORMER

Magazine on “The Greatest Trust in the World,” an exaggerated ac-
count that nevertheless did not raise the question of health condi-
tions. The Bureau of Corporations’ report on beef displeased the
public, and made the Roosevelt Administration especially defensive
about the packers. The Bureau of Anim al Industry, at the same time,
feared that attacks on the quality of inspection would reflect on the
integrity of the bureau and damage the American export market —
and advised against the publication of the Success Magazine article. 27

Roosevelt had been sent a copy of The Jungle before its publica-
tion, but took no action after it was released. The controversy over it
was carried on for several months by J. Ogden Armour, Sinclair, and
the press, and Roosevelt was dragged into the matter only after
Senator Albert J. Beveridge presented a new inspection bill in May,
1906. In February, shortly before The Jungle received wide attention,
the Department of Agriculture ordered the packers to clean up their
toilet and sanitary conditions for workers, even though it had no legal
power to do so. J. Ogden Armour, in early March, took to the Satur-
day Evening Post to defend government meat inspection. He pointed
out that the Chicago packing houses had always been open to the
public, and that the stockyards, for the past six years, had been in
the process of total reconstruction. The large packers, Armour in-
sisted, strongly favored inspection.

Attempt to evade it would be, from the purely commercial viewpoint,
suicidal. No packer can do an interstate or export business without Gov-
ernment inspection. Self-interest forces him to make use of it. Self-interest
likewise demands that he shall not receive meats or by-products from any
small packer, either for export or other use, unless that small packer’s
plant is also “official” — that is, under United States Government in-
spection.

This government inspection thus becomes an important adjunct of
the packer’s business from two viewpoints. It puts the stamp of legitimacy
and honesty upon the packer’s product and so is to him a necessity. To
the public it is insurance against the sale of diseased meats. 23

Armour’s reference to the small packers reflected his genuine
concern with the increasing growth of competitors, the number of
companies in the field increasing by 52 per cent from 1899 to 1909.
And since the six largest packers slaughtered and sold less than 50
per cent of the cattle, and could not regulate the health conditions of
the industry, government inspection was their only means of breaking
down European barriers to the growth of American exports.

103

In March, at least, Roosevelt was not thinking of legislative re-
form in beef. Although he favored “radical” action, he told Sinclair
In a discussion over socialism, “I am more than ever convinced that
(lie real factor in the elevation of any man or any mass of men must
be the development within his or their hearts and heads of the quali-
ties which alone can make either the individual, the class or the na-
tion permanently useful to themselves and to others.” 29 Roosevelt
was ready to allow the triumph of personal conversion rather than
legislation in March, but in April his alienation with the packers went
somewhat further. In March, 1906, a District Court dismissed the Jus-
lice Department’s case against the Big Four packers on the grounds
that their voluntary production of evidence to the Bureau of Corpora-
tions in 1904, on which evidence the suit was heavily based, gave
them immunity under the Fifth Amendment. On April 18, Roosevelt
Nent Congress a message denying the packers’ contention that Garfield
had promised them imm unity — which he had — and calling for legisla-
tion denying immunity to voluntary witnesses or evidence. By May,
when Beveridge brought in his proposed meat legislation, the unpopu-
lar and grossly misunderstood major packers were ready to welcome
the retaliatory legislation ag ains t them.

Historians, unfortunately, have ignored Upton Sinclair’s impor-
tant contemporary appraisal of the entire crisis. Sinclair was primar-
ily moved by the plight of the workers, not the condition of the meat.
"I aimed at the public’s heart,” he wrote, “and by accident I hit it in
the stomach.” Although he favored a more rigid law, Sinclair pointed
out that “the Federal inspection of meat was, historically, established
at the packers’ request; ... it is maintained and paid for by the
people of the United States for the benefit of the packers; . . . men
wearing the blue uniforms and brass buttons of the United States
service are employed for the purpose of certifying to the nations of
the civilized world that all the diseased and tainted meat which hap-
pens to come into existence in the United States of America is care-
fully sifted out and consumed by the American people.” 30 Sinclair
was correct in appreciating the role of the big packers in the origins
of regulation, and the place of the export trade. What he ignored was
the extent to which the big packers were already being regulated, and
their desire to extend regulation to their smaller competitors.

In March, 1906, sensing the possibility of a major public attack
on its efficiency, the Department of Agriculture authorized an inves-
tigation of the Chicago office of the Bureau of Animal Industry.

104

ROOSEVELT AS REFORME l<

Although the report of the inquiry admitted that the inspection laws
were not being fully applied because of a lack of funds, it largely
absolved its bureau. Soon after, realizing that the Department of Ag
riculture report was too defensive, Roosevelt sent Charles P. Neill,
the Commissioner of Labor, and James B. Reynolds to Chicago to
make a special report. Neill, an economist with no technical know!
edge of the packing industry, and Reynolds, a civil service lawyer,
had never been exposed to the mass slaughtering of a packing house,
and like Sinclair were sensitive, middle-class individuals. Rooseveli
regarded the Department of Agriculture report as critical, but he
hoped the Neill-Reynolds report would vindicate the worst.

Senator Albert J. Beveridge, in the meantime, began drafting a
meat inspection bill at the beginning of May. Drafts passed back and
forth between Beveridge and Secretary of Agriculture James Wilson,
and Reynolds was frequently consulted as well. Wilson wished to
have poultry excluded from the law, and diseased but edible animals
passed. By the end of May, when a final bill had been agreed upon ,
Wilson strongly defended the Beveridge proposal. The measure was
submitted as an amendment to the Agriculture Appropriation Bill
and the big packers indicated at once that they favored the bill sav-
in two particulars. They wanted the government to pay for the entire
cost of inspection, as in the past, and they did not want canning
dates placed on meat products for fear of discouraging the sales of
perfectly edible but dated products. Save for these contingencies, the
Beveridge Amendment received the support of the American Meal
Packers’ Association and many major firms. 31 The packers’ objec-
tions were embodied in the amendments to the Beveridge proposal
made in the House by James W. Wadsworth, chairman of the Com-
mittee on Agriculture.

Roosevelt immediately opposed the Wadsworth amendments, and
threatened to release the Neill-Reynolds report if the House failed to
support his position. The House supported Wadsworth, and Roose-
velt sent the report along with a special message to Congress on June
4. He must have had qualms as to what it would prove, for he hedged
its findings by asserting that “this report is preliminary,” and that it
did not discuss the entire issue of the chemical treatment of meats.
The report, the packers immediately claimed, reluctantly but defi-
nitely absolved them, but also “put weapons into the hands of foreign
competitors.” 32

105

The Beveridge Amendment passed the Senate on May 25 without
opposition. To strengthen his position, Wadsworth called hearings of
the Committee of Agriculture for June 6 through June 11. Two sig-
nificant facts emerge from the testimony, both of which Wadsworth
intended making. Charles P. Neill’s testimony revealed that the sight
of blood and offal, and the odors of systematic death, had deeply
shocked the two investigators, and that they had often confused the
inevitable horrors of slaughtering with sanitary conditions. Roosevelt
had erred in sending to the slaughterhouses two inexperienced Wash-
ington bureaucrats who freely admitted they knew nothing of canning.
The major result of the hearings was to reveal that the big Chicago
packers wanted more meat inspection, both to bring the small packers
under control and to aid their position in the export trade. Formally
representing the large Chicago packers, Thomas E. Wilson publicly
announced “We are now and have always been in favor of the exten-
sion of the inspection, also to the adoption of the sanitary regulations
that will insure the very best possible conditions,” including nearly all
the recommendations of the Neill-Reynolds report. “We have always
felt that Government inspection, under proper regulations, was an
advantage to the live stock and agricultural interests and to the con-
sumer,” but the packers strongly opposed paying for the costs of
their advantage. 33 The packers opposed dating canned food because
of its effects on sales, but had no objection to reinspection of older
cans or the banning of any chemical preservatives save saltpeter.

Although segments of the press immediately assumed that the
packing industry opposed regulation that presumably damaged their
interests — and historians have accepted their version — most contem-
poraries, including Beveridge, knew better. Upton Sinclair was criti-
cal of the bill from the start, and called for municipal slaughter
houses. On June 29, as the packers and livestock growers were urg-
ing passage of the Beveridge amendment with the government footing
the expenses, Beveridge announced that “an industry which is infi-
nitely benefited by the Government inspection ought to pay for that
inspection instead of the people paying for it.” The value of meat
inspection for the export trade, Senator Henry C. Hansbrough of
North Dakota declared, is obvious. What was wrong with the entire
measure, Senator Knute Nelson pointed out, was that “the American
consumers and the ordinary American farmer have been left out of
the question. Three objects have been sought to be accomplished —

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ROOSEVELT AS REFORMER

first, to placate the packers; next, to placate the men who raise the
range cattle, and, third, to get a good market for the packers
abroad.” 34

The battle that followed was not on the basic principle of a meat
inspection law, but on the issue of who should pay for the cost of
administering it and on the problem of placing dates on processed
meat. During the committee hearings, Wadsworth asked Samuel H.
Cowan, the lawyer of the National Live Stock Association, to prepare
a bill with the modifications acceptable to the big packers. This he
did, and it was rumored in the press that Roosevelt had given
Cowan’s efforts his tacit approval. If an agreement between Roose-
velt and Wadsworth was, in fact, reached, it was surely secret, al-
though the two men had at least two private discussions between
June 1 and 15. On June 15 the President dashed oil an attack on
Wadsworth’s bill that was intended for the press. Wadsworth, Roose-
velt claimed, was working for the packers. “I told you on Wednesday
night,” Wadsworth answered, referring to their private conversation,
“when I submitted the bill to you, that the packers insisted before our
committee on having a rigid inspection law passed. Their life depends
on it, and the committee will bear me out in the statement that they
placed no obstacle whatever in our way. . . .” 35

The House stood firm on its bill, and there was a stalemate for a
week. Since an efficient inspection bill was to the interests of the
packers, the New York Journal of Commerce announced on June 18,
they should be willing to pay its costs. But the House conferees could
not be made to budge on the issues of the government assuming the
cost of inspection and the dating of cans and processed meats. Bev-
eridge abdicated, and on June 30 the bill was signed by the President.
The bill, George Perkins wrote J. P. Morgan, “will certainly be of very
great advantage when the thing once gets into operation and they are
able to use it all over the world, as it will practically give them a
government certificate for their goods. . . ,” 30

The most significant aspect of the new law was the size of the
appropriation — $3 million as compared to the previous peak of $800,-
000 — for implementing it. The law provided for the post-mortem in-
spection of all meat passing through interstate commerce. In this
respect, the law was a systematic and uniform application of the basic
1891 Act, but it still excluded intrastate meat. Indeed, even in 1944
only 68 per cent of the meat output was covered by federal laws. The

107

new law was unique insofar as it extended inspection to meat products
and preservatives, and determined standards for sanitation within the
plants. The basic purpose of Sinclair’s expose, to improve the condi-
tions of the working class in the packing houses, could have been
achieved either through better wages or socialism. Although they now
had cleaner uniforms at work, their homes and living conditions were
no better than before, and if they became diseased they were now
thrown out of the packing houses to fend for themselves. “I am sup-
posed to have helped clean up the yards and improve the country’s
meat s apply — though this is mostly delusion,” Sinclair later wrote.
“But nobody even pretends to believe that I improved the condition
of the stockyard workers.” 37

Yet historians have always suggested that Sinclair brought the
packers to their knees, or that The Greatest Trust in the World col-
lapsed before the publication of the Neill-Reynolds report. Given the
near unanimity with which the measure passed Congress, and the
common agreement on basic principles shared by all at the time, there
is an inconsistency in the writing of historians on this problem. If the
packers were really all-powerful, or actually opposed the bill, it is
difficult to explain the magnitude of the vote for it. The reality of the
matter, of course, is that the big packers were warm friends of regula-
tion, especially when it primarily affected their innumerable small
competitors.

In late August the packers met with officials of the Department of
Agriculture to discuss the problem of complying with the law. “. . . the
great asset that you gentlemen are going to have,” Secretary Wilson
told them, “when we get this thing to going will be the most rigid and
severe inspection on the face of the earth.” According to the min utes
of the meeting, the packers responded to this proposition with “loud
applause” and not with a shudder. The purpose of the law “is to as-
sure the public that only sound and wholesome meat and meat food
products may be offered for sale,” Swift & Co. and other giant packers
told the public in large ads. “It is a wise law. Its enforcement must be
universal and uniform.” 38

Meat inspection ceased to be a significant issue during the re-
mainder of the Progressive Era. Beveridge, for several years after the
passage of the 1906 Act, tried to restore his defeated amendments,
but he had no support from either Roosevelt or other important poli-
ticians. Secretary of Agriculture Wilson, among others, opposed Bev-

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ROOSEVELT AS REFORMER

eridge’s efforts to have the packers pay for the expenses of inspection.
The packers naturally resisted all attempts to saddle them with the
costs, but strongly defended the institution of meat inspection and “the
integrity and efficiency of the Bureau’s meat inspection service.” 39 De-
spite the urging of the American Meat Packers’ Association, which
wanted action to eradicate tuberculosis and other diseases in livestock,
the issue of meat inspection died.

On the same day that Roosevelt signed the Meat Inspection Act
he also signed the Pure Food and Drug Act, and these two measures
have been commonly regarded as companion bills representing the
triumph of progressivism, health, and decency. The pure food story,
however, vividly illustrates the confused understanding by many his-
torians of what factors actually motivated legislation in the Progressive
Era.

The history of the pure food movement is the history of Harvey
W. Wiley. Before Wiley’s rise to importance in the movement, the
campaign for unadulterated, honestly marked food was carried on by
the National Board of Trade with the aid of the Grange, various state
legislatures, and special food interests whose markets were being dam-
aged by cheap competition. One of the earliest campaigns was di-
rected against the adulteration of sugar products with glucose. Wiley’s
advent on the scene came in 1883, when he went to work for the
Department of Agriculture as an expert on sugar chemistry. His ear-
lier work had been in developing acceptable glucose adulterants for
cane and maple sugar, and he was regarded as a friend of the industry.
Wiley’s contacts with industry continued through his work as a private
consultant, and in his agitation for pure food legislation he initially
maintained the position that it was mislabeling, not the purity of the
food, that was the primary problem. The poor, he felt, had to have
cheap food, and “It is not for me to tell my neighbor what he shall
eat ” 40

In early 1898 the advocates of pure food legislation called the
First National Pure Food and Drug Congress in Washington. The
body included a wide variety of official delegates appointed by gover-
nors, and representatives of professional drug associations and farm-
ers’ organizations, but it also obtained strong support from interests
that would have been directly regulated under any reform law- — the
Creamery Butter Makers’ Association, Brewers Association, Confec-

109

tioners’ Association, Wholesale Grocers’ Association, Retail Grocers’
Association, and so forth. From this time on the food reform move-
ment was essentially supported by the food industry itself, directed by
Wiley, and represented a desire of major food interests to set their
own houses in order and protect themselves from more unscrupulous
associates. At the same time as the First National Congress, a pure
food bill was submitted to the House by Rep. Marriott Brosius, and
pressure on Congress for legislation began building up.

The Brosius Bill was presented to subsequent sessions of Congress
without success. Save for slight amendments, it had the endorsement
of the National Pure Food and Drug Congress. Its main aim was to
prevent poisonous adulteration and mislabeling, and to strengthen the
ability of Wiley’s Bureau of Chemistry in the Department of Agricul-
ture to enforce the law. Pressure on Congress from wholesale and re-
tail grocers and candy makers to pass the bill continued. The food
industry did not seriously disagree on the desirability of legislation,
but segments of it wanted the law framed in such a manner as to give
their product domination and approval. The oleo and butter industries
immediately saw the possibility of interpreting a law against one an-
other, and the alum and cream of tartar baking powder interests were
similarly split.

In 1902 a bill drawn up by Wiley along the same basic lines as the
Brosius Bill was presented to the House by Rep. William P. Hepburn
and passed in December. By the end of that year the support for legis-
lation was overwhelming. The National Association of Manufacturers,
the American Baking Powder Association, and many individual food
companies swung behind the movement. By 1903, however, the oppo-
sition to the measure organized, and was centered about the patent
drug and whiskey industry and a few dissident grocers. Their line of
attack was poorly conceived. The entire movement for legislation was
designed, they claimed, to create a political lobby for Wiley and to
aggrandize the power of the Bureau of Chemistry. 41 This opposition,
however, was too weak and unrepresentative to alter the course of
events.

Roosevelt showed little concern with the entire pure food and drug
question. The movement grew in intensity, and was greatly aided by
the related excitement over the conditions in meat packing. Wiley,
who was a consistent Republican until 1912, maintained “it is not
true that Mr. Roosevelt championed the law in its bitter fight for pas-

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ROOSEVELT AS REFORMER

sage in Congress.” Although Wiley was incorrect in his contention
that Congress opposed his bill strongly — it passed 63 to 4 in the Sen-
ate and 241 to 17 in the House — he was nevertheless right in main-
taining that Roosevelt merely went along with the measure. Wiley,
despite his exaggeration of certain opposition, also admitted that the
“great majority” of the food manufacturers supported the bill once it
passed. 42 But the President and Whey, the new head of the Board of
Food and Drug Inspection, soon ran afoul of one another, and Wiley
subsequently considered Roosevelt an enemy of pure food regulation.

The immediate issue between Wiley and the President was sac-
charin, which Wiley once casually indicated was dangerous and on the
road to being banned. Roosevelt, however, used the chemical in his
coffee, and strongly disagreed with Wiley. Moreover, there were loud
complaints from some food makers that Wiley was moving to ban
sulphur dioxide and benzoate of soda. In January, 1908, the President
cut Wiley down. He created a board, under Ira Remsen, the president
of Johns Hopkins and the discoverer of saccharin, to pass on all ques-
tions over which there were serious differences of opinion “among
eminent authorities.” At the same time he began appointing less ar-
dent devotees of the cause of food inspection to Wiley’s organization.
Roosevelt, who was completely ignorant of such matters but a man of
strong prejudices, “tested him personally in reference to corn syrup,
the use of saccharine, and the importation of French vinegar.” 43 Hav-
ing failed the test, the President supported Wiley’s less aggressive
associates during the remainder of the Presidency.

One other pillar supporting the image of Roosevelt as progressive
was the role of his Administration in the conservation movement.
Fortunately, Samuel P. Hays’ brilliant Conservation and the Gospel
of Efficiency details the much more prosaic and less noble realities of
the conservation movement. “Conservation neither arose from abroad
popular outcry, nor centered its fire primarily upon the private corpo-
ration. Moreover, corporations often supported conservation policies,
while the ‘people’ just as frequently opposed them. In fact, it becomes
clear that one must discard completely the struggle against corpora-
tions as the setting in which to understand conservation history, and
permit an entirely new frame of reference to arise from the evidence
itself. . . . Conservation, above all, was a scientific movement. . . .”

The do min ant motive behind conservation was a realization that

Ill

lumber resources were being permanently squandered by indiscrimi-
nate cutting, and that in the long run the fortunes of the lumber indus-
Iry would decline as a result of such practices. Supported by the
Northern Pacific Railroad, Weyerhaeuser Timber, King Lumber, and
olher giant corporations, Gilford Pinchot — the most famous of the
conservationists — developed a program of sustained yield planting.
Pinchot, who had the support of the American Forestry Association,
regarded the forests as economic resources and strongly opposed using
(he forests as pure wilderness or game reserves. “The apostles of the
gospel of efficiency subordinated the aesthetic to the utilitarian,” Hays
points out . 44 Roosevelt supported the Pinchot school against the “pres-
ervationists” opposing cutting of any sort. In this, as in most other
matters, Roosevelt was fundamentally the conservative.

Roosevelt never ceased to maintain an incurable confidence that
institutional reform could best be obtained by personal transformation
of evildoers. He found, in the course of the many movements for legis-
lative change, that the members of the press and the public wanted
morality imposed on railroads, packers, and others. His response was
pragmatic and contemptuous. He worked with reformers if it suited
his purposes, but he virtually regarded them as the cause of evils by
(heir consciousness of them. Roosevelt preferred to solve problems
by ignoring them, and rarely took leadership during the earliest stages
of discussion of industrial or political problems if it was led by those
not in his class. Circumstances often forced him to intrude into af-
fairs after intervention could no longer be avoided — he was, after all,
conscious of votes and public pressures. But he never questioned the
ultimate good intentions and social value of the vast majority of busi-
nessmen, nor did he ever attack an obvious abuse in business or take
a stand on regulation without discreetly couching his terms with luxu-
riant praise for the basic economic status quo and the integrity of
businessmen.

Nothing better illustrates Roosevelt’s fundamental dislike of non-
business reformers than his position on the “muckrakers.” Expose
literature of the time was, admittedly, often careless and exaggerated,
but it was also usually conservative in its motives, and for the most
part avoided posing radical alternatives to existing evils. The invidious
term “muckraker” was invented by Roosevelt in the midst of the agita-
tion for food, meat, and railroad regulation, causes with which Roose-

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ROOSEVELT AS REFORMER

velt presumably identified himself. On April 14, 1906, Roosevelt made
the headlines by attacking “the man with the muck-rake, the man who
could look no way but downward . . . who was offered a celestial
crown for his muck-rake, but would neither look up nor regard the
crown . . . but continued to rake to himself the filth of the floor.”
Translated into concrete analogies, the celestial crown was apathy and
ignorance of the reality about him, a placid, optimistic complacency
toward the world as it stood. In the same speech Roosevelt hinted that
it might be theoretically desirable to someday have federal income
taxation, but in the context of his attack on reformers his innuendo
was not taken seriously, and Roosevelt never acted upon it. 46

Roosevelt was quite sincere in his criticism of the expose writers.
These journalists — Norman Hapgood, Osward Garrison Villard, and
especially David Graham Phillips — were the “friend of disorder.” “Of
course,” he confessed to William Allen White, “in any movement it is
impossible to avoid having some people go with you temporarily
whose reasons are different from yours and may be very bad indeed.
Thus in the beef packing business I found that Sinclair was of real use.
I have an. utter contempt for him. He is hysterical, unbalanced, and
untruthful. Three-fourths of the things he said were absolute false-
hoods. For some of the remainder there was only a basis of truth.” 4 *
Roosevelt’s thoroughly contemptuous attitude toward reformers indi-
cates that their relevations were hardly enough to move him. Support
by important business elements was always the decisive factor.

La Follette, of all the contemporary reformers, especially aroused
Roosevelt’s ire. He is “a shifty self-seeker,” Roosevelt told William
Allen White in 1906; “an entirely worthless Senator,” he concluded
several years later. 47 La Follette, for his part, condemned Roosevelt’s
“equally drastic attack upon those who were seeking to reform abuses.
These were indiscriminately classed as demagogues and dangerous
persons. In this way he sought to win approval, both from the radicals
and conservatives. This cannonading, first in one direction and then in
another, filled the air with noise and smoke, which confused and ob-
scured the line of action, but, when the battle cloud drifted by and
quiet was restored, it was always a matter of surprise that so little had
really been accomplished.” 48 La Follette was wrong, of course, A
great deal was accomplished, but for conservative ends.

CHAPTER FIVE □ □ □ □ □

ROOSEVELT

AND

BIG BUSINESS,
1906-1908

The Good
Trusts

During mid- 1906 Roosevelt signed his name to three major acts
of legislation. Even though each of the industries involved — meat,
food, and railroads — supported the specific measures regulating them,
it appeared to subsequent historians as if the President had embarked
on a decisive campaign for general regulation. Roosevelt had been
cajoled into the meat and food campaigns, however, and top business
circles were not apprehensive as to what the future held for them. “I
believe that the powers that be feel that they have made splendid po-
litical capital out of what has been done in connection with the pack-
ers, the Standard Oil Company and minor matters,” George Perkins

113

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ROOSEVELT AND BIG BUSINESS

reassured Morgan in June, 1906, “and are ready to rest on their
laurels for some time.” Especially comforting for the Morgan interests
was the fact, as Perkins phrased it, that “the [U.S. Steel] Corporation
is looked upon in Washington with more favor than perhaps any other
one concern. . . -” 1

Perkins’ confidence was based on the understanding that had been
reached between the Bureau of Corporations and U.S. Steel, as well as
the excellent personal relations that he and Gary enjoyed with the
President. The bureau investigation, U.S. Steel soon found, was a
heavy drain on its time because the statistical data requested often
took months to collect, but it at least kept the Administration happy.
Indeed, the investigation dragged on interminably until 1911, and the
relationship between U.S. Steel’s leaders and President Roosevelt was
to shift to other grounds.

The Tennessee Coal and Iron Company was the major steel pro-
ducer in the South. Although its history until 1904 was not one of out-
standing profit, from that year until 1907, when it earned gross
profits of $2.8 million on sales of $13.3 million, it began to realize its
tremendous potential. The promise of the company was based on its
enormous reserves of iron ore, coal, dolomite, and lime located within
a small region in northern Alabama and southern Tennessee. Its iron
ore holdings were estimated at about 700 million tons, and its coal re-
serves were larger yet. Reliable estimates made by John W. Gates and
Charles Schwab indicated that a ton of pig iron might be made by the
firm at two to five dollars less than any competitor in the country,
giving it a potential control over the entire Southern market. The com-
pany’s inability to capitalize on its advantage was ended by a new
management, and although the firm’s raw materials had various im-
perfections, by 1907 it was actually charging more than the going
average for its rails and getting vast orders from the Harriman lines.
In 1907 alone Tennessee invested $6.6 million in new construction,
and began a duplex steel process plant at Easley, Alabama that was
technically outstanding and promised rich awards. Early in 1907 J.
P. Morgan, considering the company’s promise and resources, asked
Gary and Frick about the desirability of buying it, but they advised
against such a move. Although Gary later claimed that U.S. Steel was
frequently offered Tennessee stock by individual stockholders in the
company, John W. Gates testified before a Congressional hearing that

115

his son was approached by U.S. Steel in late 1906 to sell his large
holdings in Tennessee.

There can be no doubt that at least Morgan coveted the Southern
Bteel company. In October, 1907, during the growing financial crisis
on Wall Street, the investment firm of Moore & Schley came to U.S.
Steel for a loan of $1.2 million to cover its commitments during the
tight money market. A fist of stock was offered the Morgan firm as
sources of collateral to cover the loan, including large amounts of
American Tobacco, Guggenheim Copper, and five others, including
Tennessee Iron. U.S. Steel chose $2 million in Tennessee co mm on
shares. Its foot was in the Tennessee door.

Moore & Schley’s problems, however, were not to end with the
infusion of $1.2 million. Another $5 to $6 million was needed to help
the firm meet its obligations, although Schley later denied that the
issue involved was the ability of his company to avoid a crash. The
company had about $25 million in shares to use as collateral, includ-
ing large holdings of American Tobacco and Tennessee Coal and
Iron. Again Moore & Schley approached Morgan, whose policy it was
to help key firms during the crisis in order to prevent further declines
and possible bankruptcies that might shake the very foundations of
Wall Street. It was now up to the House of Morgan to decide whether
it would take Tennessee stock as its collateral and move to control the
entire company. 2

On Saturday, November 2, Perkins, Morgan, and other key mem-
bers of the concern met at Morgan’s home to discuss the problem,
“The idea being,” in Perkins’ words, “that possibly the Steel Corpora-
tion might be able to secure the property at an advantageous price.”
Later the same day, U.S. Steel’s finance committee was called in for
consultation. Frick opposed the purchase, alleging that production
costs at Tennessee were too high, and Gary feared what the federal
government might think of such a massive merger. “Mr. Morgan,” ac-
cording to Perkins, “felt as strongly the other way and urged that the
coal and ore that this Tennessee Coal & Iron Company owned were,
in themselves, worth the company’s capitalization.” 3 The next day,
Sunday, the president of Tennessee was called in and discussed the
progress the company was making in lowering costs and expanding
production. The objections met, U.S. Steel’s financial committee
agreed to buy. An earlier rejected bid to Moore & Schley to buy the
stock at less than par was raised to par, and Moore & Schley were

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ROOSEVELT AND BIG BUSINESS

offered $12 million for their shares. As for the federal government, it
was agreed that Frick and Gary would immediately seek the approval
of the President to consummate the deal.

That same night Gary and Frick boarded a train for Washington
and arrived at the White House the following morning while the Presi-
dent was at breakfast. Garfield, perhaps coincidentally, arrived on the
scene at the very same time, and obtained an immediate audience
with Roosevelt for the steel men. Since Attorney General Bonaparte
was out of town, Elihu Root was called in for an opinion on the mat-
ter. Gary and Frick did not identify Moore & Schley specifically, but
explicitly indicated to the President that unless U.S. Steel acquired its
stock in Tennessee, an important firm would definitely collapse and
possibly cause a major crisis on Wall Street. U.S. Steel, they claimed,
did not particularly care to acquire Tennessee Coal and Iron, because
it was unprofitable, but they regarded it as a public duty. Roosevelt
was not told that Moore & Schley had considerable alternate collat-
eral, and he apparently was not aware that it needed a mere $6 mil-
lion loan rather than the $45 million the total stock of the firm was to
cost U.S. Steel. The cost of the stock, Gary indicated, was 35 per cent
more than its real value.

Roosevelt took the statements of Gary and Frick at their face
value, since the word of gentlemen could not be questioned. Roosevelt
later insisted until the bitter end that he had not been deceived as to
their truthfulness or the nobility of their motives. On the basis of their
explanation, Roosevelt promised he would not prosecute U.S. Steel.
Root and Gary then cooperatively drafted a formal statement on the
understanding, consisting of a letter from Gary to Root on November
7, which was confirmed by the President and filed with the Department
of Justice as a guide to policy. The final November 7 letter did not
actually reveal everything that went on at the meeting in the White
House; it was discreetly edited so it could not embarrass the Adminis-
tration in the future. The following is Gary’s November 7 letter, the
bracketed sections having been cut from the final version.

At the recent interview at the White House between the President, your-
self, Mr. Frick and myself, I stated, in substance, that our Corporation
had the opportunity of acquiring more than one-half of the capital stock
of the Tennessee Coal, Iron & Railroad Company at a price somewhat in
excess of what we believed to be its real value; and that it had been rep-
resented [to us by leading h ank ers in New York] that if the purchase

117

should be made it would be of great benefit to financial conditions, and
would probably save from failure an important business concern; that
under the circumstances Mr. Frick and I had decided to favor the pro-
posed purchase of stock unless the President objected to the same. I
further stated that the total productive capacity of our Companies would
not be materially increased by the ownership of the properties of the
Tennessee Company, and, after the purchase, would probably not amount
to more than sixty per cent, of the total steel production in this country,
which was about the percentage our Companies controlled at the time
of the organization of the U.S. Steel Corporation; that our policy was
opposed to securing [that our policy was not to secure] a monopoly in
our lines or even a material increase of our relative capacity [not to
materially increase our relative capacity].

I understood the President to say that while he would not and could
not legally make any binding promise or agreement he did not hesitate
to say from the circumstances as presented he certainly would not advise
against the proposed purchase.

[The President was also kind enough to state generally his favorable
opinion of our Corporation and its management as ascertained by reports
from the Department of Commerce and otherwise.]

If consistent will you kindly write me if the above statement is in
accordance with your understanding and recollection . 4

In consummating the agreement, U.S. Steel increased its ore re-
serves by 40 per cent and acquired a company worth, at the time, at
least four times the purchase price.

Having secured Tennessee Coal and Iron at an “advantageous
price” far in excess of the amount needed to save one of its stock-
holders, the House of Morgan and U.S. Steel proceeded to consolidate
I heir position with Roosevelt in other areas as well. In late 1907, as
has already been discussed in Chapter Two, the famous Gary Dinners
were organized in an effort to fix and stabilize steel prices. Roosevelt
and Bonaparte were fully informed of the activity from the beginning,
and decided to allow the clearly illegal restraint of trade to continue
without government interference. At the same time, the Bureau of
( brporations’ study of U.S. Steel continued at a leisurely pace.

In January, 1909, at the end of Roosevelt’s tenure of office, sev-
eral minor crises with U.S. Steel occurred. For over a year the bureau
had patiently endeavored to obtain data from U.S. Steel on the cap-
italization of its original stock flotation as compared to the real value
of the companies. It was widely known at the time that about one-half
of the corporation’s original stock represented water, and Gary and

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ROOSEVELT AND BIG BUSINESS

Perkins were extremely defensive about the matter. Despite this
breach by U.S. Steel in the agreement to supply the bureau with all
data, the bureau and Roosevelt remained fast friends of Steel. This
was especially true after Garfield was appointed Secretary of the In-
terior in March, 1907, and Herbert Knox Smith was made chief of the
bureau. In January, 1909, the Senate decided that an investigation of
U.S. Steel’s absorption of Tennessee Coal and Iron was in order.
Rumors were rife that the extraordinarily valuable company had been
acquired at a bargain price during the panic of 1907 as a result of the
President’s promise of immunity from antitrust prosecution. Roosevelt
and Bonaparte were seriously embarrassed, especially since they knew
the rumors were true. They decided immediately to oppose the inves-
tigation. Roosevelt ordered Smith to send to the White House all con-
fidential information gathered by the Bureau of Corporations relevant
to the Tennessee merger, and he let it be known “that I could not be
forced to give them . . . unless they were prepared to go to the length
of trying to have me impeached.” 5 On January 26, the Senate Com-
mittee on the Judiciary requested the bureau’s data on U.S. Steel. On
January 29, Secretary of Commerce Oscar Straus, with Roosevelt’s
permission, sent the Senate only what he termed nonconfidential
material. U.S. Steel nervously watched the first real test of its detente
with Roosevelt, and Gary anxiously reminded the bureau that “I hope
our understanding will not be overlooked.” 6 His confidence was not
betrayed, for when the Senate Committee delivered its report in March
it could not, for lack of information, pass judgment on the entire
Tennessee Coal and Iron affair.

Roosevelt was incapable of doubting the honesty and good inten-
tions of Gary and Perkins, and defended his actions and their state-
ments on the Tennessee affair until his death. Given his sympathy, the
Morgan group moved to use the President and the executive agencies
in defending and protecting their other interests as well. From March,
1907 on, Roosevelt maintained an uneasy arrangement with Morgan’s
New Haven Railroad to allow it to absorb much of New England’s
railroad system. Despite vicissitudes in the arrangement, which I have
discussed in detail in my study of railroads, Roosevelt permitted the
effort, which was far more monopolistic than the Northern Securities
Company, to be consummated. At the same time, Roosevelt never
challenged the altruistic statements of U.S. Steel’s leadership, and

119

especially of Gary and Perkins, on labor-management cooperation.
As leading figures of the National Civic Federation they publicly de-
fended that organization’s co mmitm ent to conciliation and arbitration
between labor and management and its desire to see open shop union-
ism — at the time a seemingly radical position. Gary and Perkins were
strong advocates of worker stock ownership, and introduced a stock
participation plan at U.S. Steel. Roosevelt regarded them as model
capitalists, and never once challenged the reality behind their state-
ments.

The reality, of course, was very different. In 1901, during the
Nlrike by the Amalgamated Association of Iron, Steel and Tin Work-
ers against U.S. Steel, the union movement in steel was virtually de-
stroyed. Working conditions were notoriously bad, and they never
substantially improved during this period; wages rose only very
slightly. Like all other major corporations at the time, and despite the
public relations image it tried to cultivate, U.S. Steel was autocratic
and paternalistic, and it remained so for many years. 7

In December, 1906, Congress passed a resolution ordering an in-
vestigation of Morgan’s International Harvester by the Bureau of Cor-
porations. The bureau and International Harvester, of course, already
had an informal understanding, dating to May, 1904, that the com-
pany, if notified, would alter any illegal practice. In February, 1905,
International’s attorney met with Garfield and expressed his firm’s de-
sire to cooperate with any investigation or “in having new laws en-
acted for federal regulation.” 8 The matter was allowed to lie dormant
until Congress forced action. Perkins and Cyrus McCormick, referring
to their earlier offer of cooperation, immediately renewed their pledge
to aid an investigation in any way possible.

On January 18 and 19, 1907, Garfield, Herbert Knox Smith, Gary,
Perkins, Cyrus McCormick, and Charles Deering met at the Waldorf-
Astoria in New York to discuss the investigation. Gary, speaking for
International Harvester, announced, in Smith’s words, that the com-
pany “would take the same attitude toward the proposed investigation
by this Bureau as has been taken by the United States Steel Corpora-
tion, and would ask the same treatment of the information furnished.”
D.S. Steel was fully satisfied with the treatment it was receiving, and
Harvester expected to be also. It hoped that the information “would
not be used for demagogic purposes,” or in a manner that would help

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ROOSEVELT AND BIG BUSINESS

its competitors. The bureau agreed to these requests. Gary informed
Garfield, again in Smith’s words, that “he believed in the work of the
Bureau and the necessity of Governmental supervision of large cor-
porations, and that he felt that the President and the Bureau, repre-
senting his policy, was a strong safeguard both to the removal of
abuses and to the prevention of violent attacks on private rights in
general that might otherwise come.” Perkins and McCormick agreed
with Gary, and it was for this reason that Perkins had worked for the
establishment of the bureau. More specifically, they welcomed the
bureau’s investigation because “the best thin g that could happen to
the Harvester Company was a report by the Bureau showing the truth
of their claim that they were operating their American business at
a loss, for then they would have just ground for raising American
prices.” Garfield was most obsequious about such business coopera
tion with the bureau. “It is most gratifying to find that the leaders
of business are thus recognizing the right of the Government to so
investigate.”®

It did not occur to Garfield that Morgan’s men were quite serious
when they stated they wished to use the bureau to raise prices, to pre
vent attacks from less friendly parties, and as a general shield. Gar
field did not promise immunity from legal prosecution in the event of
violations of law, but he appeared to be friendly to the Morgan inter
ests, and that was all that mattered. At the end of March, 1907, how
ever, Harvester formally requested Attorney General Bonaparte to
defer any possible prosecution until a complete bureau report could
be finished. At about the same time, it urged the bureau to begin its
investigation in order that its objective analysis of the corporation
could be used to stem the tide of state prosecutions of International.
The bureau, the McCormicks asked, should point out any “irregular
ities” in their company’s practices, and they would immediately be
corrected. Smith, for his part, assured them “that it was not the desire
of the Bureau to harass the Harvester Company . . . and that our
Bureau was not a destructive agency. . . .” 10

But the bureau still would not initiate its investigation on a serious
scale. In May, 1907, International’s attorney visited the bureau, de-
livered information, and offered more. His hint did not change mat
ters. During the interim, Attorney General Bonaparte took steps to
bring a suit against Harvester for certain of its overseas operations.
On August 22, Perkins took the matter in hand and visited Roosevelt

121

al his Oyster Bay home. Perkins complained about the lack of prog-
ress the bureau was making, and indicated his anxiety about the un-
necessary antitrust action by the Department of Justice before the
bureau’s report revealed on the true facts about the company. Roose-
velt wrote Bonaparte to defer a possible suit, at least until the matter
could be straightened out, and Smith was notified of the meeting,
thereby leaping to action. Perkins saw Smith several days later, and
then discussed the matter with Bonaparte, who was feeling aggressive
at the time. Bonaparte must have realized what was in store for him,
and pleaded ignorance of the May, 1904, agreement between Attorney
General Moody and International Harvester to work problems out
privately. The matter was allowed to lie dormant until September 21,
when Smith sent Roosevelt a long, impassioned defense of the system
of mutual understandings and detentes with the House of Morgan that
had been built by the bureau. Endorsing the policy of delaying any
antitrust prosecutions until the bureau had time to complete its in-
vestigations, Smith also prejudged the inquiry by indicating “I have
no knowledge of any moral grounds for attacks on the company.”
"The attitude of the Morgan interests generally, which control this
company, has been one of active cooperation,” and to initiate prose-
cution would be an abandonment of the policy of distinguishing be-
tween good and bad trusts. More important. Smith rejected the
Sherman Act as a guide to corporate policy. “I believe that industrial
combination is an economic necessity, that the Sherman law, as in-
terpreted by the Supreme Court, is an economic absurdity and is im-
possible of general enforcement, and even if partially enforced, will,
in most cases, work only evil. I believe the principle it represents
must ultimately be abandoned.” Business had supported, for the most
part, the President’s friendly policy of publicity as a means of regu-
lation. More pointedly, Smith asked, “it is a very practical question
whether it is well to throw away now the great influence of the so-
callcd Morgan interests, which up to this time have supported the
advanced policy of the administration, both in the general principles
and in the application thereof to their specific interests, and to place
them generally in opposition.” 11 Straus endorsed Smith’s position,
and advised the President to do so as well. The threatened suit was
called off.

The question of why and how the International Harvester suit was
withdrawn later became a controversial issue in the 1912 campaign,

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ROOSEVELT AND BIG BUSINESS

when Taft accused Roosevelt of being subservient to the House of
Morgan. The best Roosevelt could say of the accusation — Taft pub-
lished many of the damning letters of August and September, 1907
— was that Taft failed to voice his protest at the Cabinet meeting
that endorsed his decision. The point was irrelevant — ignoring Taft’s
denial that he was at the meeting — since the decision was ultimately
Roosevelt’s and Smith’s alone. Taft also revealed that on September
26 Roosevelt ordered Bonaparte to stop the projected suit, and
notified Perkins that a bureau investigation would precede any suit.

Roosevelt had the suit buried, but the bureau’s investigation —
which Smith had used as a bait for undercutting Bonaparte — con-
tinued to hang in limbo. His eyes fixed on state litigation, Cyrus
McCormick, during October, 1907, felt compelled to write Smith to
speed his inquiry. Smith continued to delay, and only in March,
1908, began the investigation in a serious manner. Perkins continued
to badger Smith to move more quickly, and International sent in a
considerable amount of data. In October, 1908, a temporary snag
developed over International’s reluctance to release appraisers’ re-
ports of the value of its 1902 pre-merger plants, but this obstacle was
quickly removed. The study was not completed until March, 1913. 12

The Evil
Trusts

The June, 1904, understanding between Garfield and the Stand-
ard Oil Company, by which information on oil would be gathered in
a friendly, cordial manner, had led to difficulties by the end of 1905,
As the bureau unavoidably closed in on the rebating practices of
Standard and various railroads, the oil giant began throwing obstacles
in the path of the inquiry. Kline insisted that Standard was giving the
bureau all the information it had, but in this instance Garfield was
unwilling to be put off. Kline, during March, 1906, seemed pleased
with Garfield’s work, but grew apprehensive as skeptical questions
were put to Standard by bureau investigators. The press reported
that on March 9, H. H. Rogers and John D. Archbold visited Roose-
velt and offered the bureau all the information it desired in return
for staving off a federal prosecution. II such an offer was indeed

123

made, Roosevelt apparently turned it down, and although Kline tried
to satisfy the bureau that no rebating was carried on, Garfield sub-
mitted a report to Roosevelt claiming extensive railroad rebating to
Standard.

The report, as even historians friendly to Standard have admitted,
was largely accurate. It came at an especially convenient time for
Roosevelt, and since he still remembered Standard’s opposition to the
formation of the Bureau of Corporadons, he did not hesitate to use
It. The Hepburn Bill on railroads was being debated at that time in
the Senate, and Roosevelt thought it would help the passage of the
measure if he sent the bureau’s report to Congress along with a
Special Message. The bureau’s report, sent to Congress on May 4,
also convinced Attorney General Moody that Standard had violated
ut least the Elkins And-Rebating Act, and deserved to be prosecuted.
Roosevelt was willing to allow Moody to go ahead, and in mid-
November, 1906, the Department of Jusdce formally filed several
cases against Standard and its affiliates. A decision on the major re-
bating case was not handed down until August 3, 1907, when Judge
Kenesaw Mountain Landis fined Standard $29,240,000 for taking
rebates on 1,462 counts. A bumpdous, colorful figure, Landis im-
mediately had to be brought into harness when he also threatened to
open a case against the Chicago & Alton Railroad — which the govern-
ment had promised immunity for supplying evidence.

Standard was unperturbed by Landis’ fine, which it immediately
appealed, but was far more disturbed by the Justice Department’s
suit in September, 1907, to dissolve the company. On September 8,
Bonaparte was visited by a government attorney active on the Stand-
ard case who relayed the message that Standard was “very much
dispirited and alarmed,” and would open its books and correct all
abuses if the government would not make individual indictments and
would drop the case. Neither Bonaparte nor Roosevelt liked the
proposition. To Roosevelt, Standard Oil and Harriman were “setting
the pace in the race for wealth under illegal and improper condi-
tions,” and were the epitome of evil, as opposed to good, trusts. 13
Roosevelt, of course, was deeply involved at the time in a variety of
friendly understandings with Morgan corporations, and there is little
doubt that Standard was fully informed of all of the significant
details. Standard also wished to establish a detente.

Bonaparte was not Standard’s man, and the company next ap-

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ROOSEVELT AND BIG BUSINESS

proached Garfield. On September 21, Fred Gofl, one of Standard’s
Cleveland attorneys, visited Garfield and offered to reorganize the
company in conformity with the law if the antitrust suit could be
quashed. Garfield was obviously flattered. “Strange,” he confided in
his diary, “if such a change should come through my work + in my
hands.” Garfield favored the arrangement. He and Goff met again
the following day, and they agreed to consult with their superiors. On
September 27, Garfield discussed the matter with Roosevelt, who
was skeptical but willing to send Garfield to Bonaparte for further
discussions. The two Cabinet members decided that any future pro-
posals would have to come from the responsible leaders of Standard
themselves, and on September 29, with Archbold and J. D. Rocke-
feller’s approval, Standard submitted its plan. Two commissioners
— Garfield and Goff — could freely examine Standard’s books at the
corporation’s expense, and would have the unanimous power to make
Standard conform to their recommendations and the government to
drop all suits. “A really astonishing proposal,” Garfield concluded.
“Goff has done well to induce them to make the offer.” 14 Additional
meetings followed, and during most of the month of October both
Roosevelt and Bonaparte seriously considered the matter.

Then Standard made an error. Senator Jonathan Bourne, Jr. of
Oregon visited Roosevelt and told him that if he agreed to the detente
with Standard, the oil giant would help him win the nomination for
the Presidency in 1908; it is likely that it was Archbold alone who
sent Bourne. On October 25, the Cabinet met and decided to con-
tinue the prosecution.

There the matter rested until June, 1908, when Senator Bourne
and Archbold tried to take the matter in hand with an even more
bizarre proposition. During that month a reorganization plan for
Standard was given to Bonaparte by the company, and Roosevelt left
it to his Attorney General to decide whether it attained the object of
the antitrust litigation. Linking the two proposals together, in late
June Senator Bourne again visited Roosevelt about running for the
Presidency with Standard support. Roosevelt dismissed the offer, and
referred Bourne to Bonaparte. Still seeking some sort of grand alli-
ance, Bourne asked Bonaparte to prepare an antitrust bill embodying
the ideas of the Administration, which he would then try to have
pushed through the Senate. Roosevelt and Bonaparte were evidently
irritated by the Oregon Senator, and cut the matter rather short. 15

125

On July 22, Circuit Court Judge Peter S. Grosscup decided to
reverse the Landis fine on Standard. Roosevelt did not mind a reduc-
tion of the fine against Standard of Indiana, which he had always felt
was excessive, but he reacted strongly against Grosscup’s claim that
the Landis trial was unfair and should be retried. Grosscup’s decision,
coincidentally, came at a time when Chicago papers were attacking
his record for taking railroad passes during the late 1890’s and
Roosevelt was discussing his impeachment. Roosevelt’s early opinion
of Grosscup had been, first, that he was too radical and, after his past
scandal, too conservative. In fact, however, Grosscup’s position on
the modem corporation — that it was inevitable and desirable — was
similar to Roosevelt’s, and in 1912 he supported Roosevelt in the
Presidential election. The Grosscup decision, later sustained by the
retrial, marked the end of negotiations for a detente between Stand-
ard and Roosevelt. Despite the victory of Standard in the rebating
case — the antitrust case was still pending — a cordial relationship be-
tween top members of the Roosevelt Administration and Standard
executives continued. Garfield saw Fred Goff from time to time. And
in late July, 1908, shortly after Judge Grosscup had saved Standard
$29 million, a party in his honor was given at Williamstown, Massa-
chusetts by Rockefeller’s son-in-law, T. Parmalee Prentice. Among
the guests celebrating and feting the honorable judge from Chicago
was Attorney General Bonaparte! 16

The tobacco industry was one of the few in which a single com-
pany had anything like monopoly control. Moreover, the American
Tobacco Company followed an aggressive merger policy and was
ruthless in fighting its competitors. Indeed, American Tobacco was
strategically in a better position to maintain control over tobacco than
Standard was to dominate the oil industry.

In 1904 American Tobacco absorbed Continental Tobacco, one
of its few major competitors, and action by the government was in-
evitable. The nature of the government’s approach, and the diverse
interests that entered into the case, illustrate the relationship between
the Roosevelt Administration and “bad” trusts with which detentes
of the U.S. Steel variety were politically impossible.

Tobacco’s man in the higher circles of government was Eliliu
Hoot. Root had worked for Thomas F. Ryan in 1905, and Ryan was
interested in Tobacco. In late 1906 the Justice Department began

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ROOSEVELT AND BIG BUSINESS

taking steps leading to possible litigation against Tobacco. W. W.
Fuller, Tobacco’s counsel, persuaded Root to defend the Tobacco
position within the Administration and, if possible, to prevent an
antitrust suit. He sent Root considerable data to sustain Tobacco’s
case, and in February, 1907, when it became apparent that Taft and
Bonaparte were pressing for an antitrust suit, Ryan suggested a pos-
sible compromise to Root. He had warned Tobacco executives to
cooperate with the President, Ryan claimed, and he wished the com-
pany to distribute its direct stock holdings among the shareholders.
In late February, however, the Justice Department subpoened vari-
ous Tobacco executives. Although Root tried to reassure Ryan as to
what the future held in store, Ryan decided to put his cards on the
table. “I have just heard that the Harvester Company,” he wrote in
March, “has made an agreement with the Department of Justice (that
is the President) to do what I want Am Tob company to do — I think
you could try to find out if the President would like us to walk in that
line[.] I feel sure he [would] ... get much credit by our doing so.” 17

The key advocate of legal action against American Tobacco was
James C. McReynolds, special assistant to Attorney General Bona-
parte, who acted without interference from his superior. Root and
Ryan decided to try to convince Roosevelt to accept Tobacco’s stock
distribution plan or else hand the entire matter over to the Bureau of
Corporations for an investigation. During March, as McReynolds
moved to convene a grand jury inquiry into Tobacco, the firm offered
to dispose of its stock in British-American Tobacco, Reynolds To-
bacco, and others. McReynolds, who was given complete jurisdiction
over the matter by Bonaparte, refused to budge, and the grand jury
inquiry went on.

An International Harvester-type detente was not consummated,
but the bureau was brought into the matter nevertheless. The bureau
had been toying with an investigation of Tobacco, and in early May
an American Tobacco attorney visited Herbert Knox Smith to try to
speed up its inquiry. The bureau’s report, Fuller told Root, would be
out by mid-summer. “But they already have come to their conclu-
sions all along the line and they are very favorable to us — indeed Mr.
Smith said that they were so favorable that he supposed the public
would believe that his Department was stupid and deceived by us. . . .
It may be that if the Presdt. wants a sort of advance idea of the dis-
coveries of the Department of Commerce, he can get it by talking

127

with Mr. Smith. It would show him how we have been slandered and
misrepresented, and maybe change his feeling toward us.” 18

Neither Root nor the Bureau of Corporations was able to stop a
suit against American Tobacco, but they were able to blunt some of
McReynolds’ more extreme proposals. McReynolds suggested that a
receivership be created over American Tobacco, and that a general
bill allowing this method of dissolution in other suits be recom-
mended to Congress. The proposal was referred to Root and Bona-
parte; both took a dim view of it and it died. Another suggestion, to
tuke criminal action against James B. Duke, the founder and con-
troller of American Tobacco, was also rejected. Root remained
American Tobacco’s main contact within the Administration, but he
could not prevent the Southern District Court of New York from
ordering the dissolution of the company in 1908. The entire question
passed to the courts until 1911, when the Taft Administration was
forced to make the final decision on American Tobacco’s fate.

The Rule of
Reason

One can evaluate Roosevelt’s relationship to big business both
operationally and theoretically. Operationally there is the reality of
detentes with the Morgan companies, and the President’s refusal to
take steps against them. At the same time there is the fact that the
antitrust activity of Roosevelt’s Administration was purely minimal,
nnd substantially less, in terms of the number of cases initiated, than
under Taft or Warren G. Harding.

Even without discounting Roosevelt’s more exuberant political
rhetoric, there was a remarkable correspondence between these
operational realities and his theories. Although his views on the rela-
tionship of the corporation to society and politics developed some-
what through experience, the core of his ideas remained remarkably
constant. He usually discussed the corporation in the context of an
attack on “sinister demagogs and foolish visionaries” who “seek to
excite a violent class hatred against all men of wealth.” The corpora-
tion that created injustice, and the critic of injustice who did not ac-
cept the basic premises of the corporate economy, were invariably

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ROOSEVELT AND BIG BUSINESS

equated, and the injustices that Roosevelt attacked were not the
structural evils inherent in an exploitive economy but those evils as-
sociated with a few exceptional corporations. “Under no circum-
stances would we countenance attacks upon law-abiding property,”
he declared in January, 1908, “or do ought but condemn those who
hold up rich men as being evil men because of their riches. On the
contrary, our whole effort is to insist upon conduct, and neither
wealth nor property nor any other class distinction, as being the
proper standard by which to judge the actions of men.” Conduct, to
Roosevelt, was a personal and not an institutional question, and in
reality often was equated with the manners and class sensibilities upon
which Roosevelt had been raised. “Sweeping attacks upon all
property, upon all men of means, without regard to whether they do
well or ill, would sound the death-knell of the Republic,” he never
tired of reiterating.

“In the modern industrial world combinations are absolutely
necessary,” Roosevelt concluded, and not merely among businessmen
but among workers and farmers as well. Roosevelt resigned himself
to the contemporary belief in the inevitability of trusts. “It is mis-
chievous and unwholesome,” he repeated again and again in different
ways, “to keep upon the statute books unmodified, a law, like the
anti-trust law, which, while in practice only partially effective against
vicious combinations, has nevertheless in theory been construed so
as sweepingly to prohibit every combination for the transaction of
modern business.” The law should not be repealed, he declared in
December, 1907, but “it should be so amended as to forbid only the
kind of combination which does harm to the general public.” Com-
binations were “reasonable or unreasonable,” and the way to deter-
mine which should be allowed was to grant supervisory power to the
federal government. Antitrust suits as a means of enforcing the law,
Roosevelt declared, were “irksome” and prolonged affairs. Instead,
the government should have the right to approve “reasonable agree-
ments” between corporations, provided they were submitted for
approval to an “appropriate” body. National incorporation of
combinations, with heavy emphasis of the regular publication of key
data and publicity, would allow the government to regulate the corpo-
rate structure to protect both shareholders and the public. Barring
this, federal licensing for the same ends might be tried. And only the
national government was capable of effective regulation of this magni-
tude. Regulation, not repression, was (lie (heme. 19

129

Roosevelt’s interpretation of the trust problem, bis association of
the evils of concentration with the personality of individuals, and his
separation of “good” from “bad” combinations as a means of accept-
ing the major premises of the corporate economy, were all part of the
dominant thought of the day. His basic ideas, which were virtually
identical to the attitude on the “trust problem” taken by the big busi-
ness supporters of the National Civic Federation, were eminently ac-
ceptable to the corporate elite. The idea of federal incorporation or
licensing was attractive as a shield against state regulation, and rather
than frightening big business, as most historians believe they did,
Roosevelt’s statements encouraged them. Indeed, even his passing
reference in his 1906 Message to Congress to the theoretical desir-
ability of an income tax law was hardly radical. Andrew Carnegie
was also attacking the unequal distribution of wealth as “one of the
crying evils of our day,” and the fact that Roosevelt took no concrete
steps on the matter, and linked it with a Constitutional amendment,
meant his rhetoric was not frightening even to reacdonaries.

Early in 1908 George W. Perkins, the functional architect of the
detente system and political capitalism daring Roosevelt’s presidency,
uttempted to articulate a systematic view on the relationship of the
giant corporation to national government. The modern corporation,
to Perkins, was the “working of natural causes of evolution.” It must
welcome federal supervision, administered by pracdcal businessmen,
that “should say to stockholders and the public from time to time
that the management’s reports and methods of business are correct.”
With federal regulation, which would free business from the many
states, industrial cooperation could replace competition. In a defense
of Roosevelt against unwarranted attacks from the business commun-
ity — a community that was not obtaining the same benefits of busi-
ness-government cooperation as Morgan firms — Perkins also

suggested that Roosevelt shared his interpretation of the necessity of
sympathetic regulation. “It is needless to say that I am in substantial
agreement with most of the propositions that it contains,” Roosevelt
wrote his admirer upon receiving a copy of the speech. 20

With the exception of Bonaparte, virtually all of Roosevelt’s im-
portant advisers accepted his interpretation of the trust issue. Roose-
velt ignored Bonaparte’s objection that the terms “reasonable” and
“unreasonable” were too indefinite for legal purposes and were sub-
ject to arbitrary interpretation. He did not feel that the antitrust law
should be sweepingly applied, which it never was, but he suggested!

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ROOSEVELT AND BIO BUSINESS

that Roosevelt’s past distinctions between good and bad trusts had
caused “those interested in certain trusts to claim immunity on the
ground of their virtuous and benevolent purposes.” 21 The detente
system, Bonaparte sensed, was the logical conclusion of Roosevelt’s
philosophy. He was correct, but his influence was not sufficient to
override it. Bonaparte, like his peers, was never concerned with the
size of the corporate unit, but only with whether it violated the law.
The difference was that the literal-minded Bonaparte thought an in-
flexible law was desirable, and Roosevelt did not.

Roosevelt sharply distinguished between good and bad corpora-
tions, and if the contemporary public was largely unaware of the
subtle differences, at least Roosevelt and many big businessmen
knew precisely what was happening. Roosevelt was consciously using
government regulation to save the capitalist system, perhaps even
from itself, for the greatest friend of socialism was the unscrupulous
businessman who did not recognize that moderate regulation could
save him from a more drastic fate in the hands of the masses. “. . . I
think the worst thing that could be done,” he wrote Henry Lee Hig-
ginson concerning the railroads, “would be an announcement that for
two or three years the Federal Government would keep its hands off
of them. It would result in a tidal wave of violent State action againsi
them thruout three-fourths of this country.” “The reactionary or
ultraconservative apologists for the misuse of wealth assail the effort
to secure such control as a step toward socialism. As a matter of fact
it is these reactionaries and ultraconservatives who are themselves
most potent in increasing socialistic feeling.” . . we are acting in
the defense of property,” he reminded Lodge. 22

Roosevelt was not alone in reiterating his conservative intent and
function. Elihu Root as Secretary of State and L. M. Shaw as Secre-
tary of the Treasury were two of the bitterest opponents of popular
government. Oscar S. Straus, his Secretary of Commerce from
December, 1906 on, was formerly president of the New York Board
of Trade and Transportation, and was close to the National Civic
Federation; he allowed Herbert Knox Smith to run the Bureau of
Corporations with a free hand. More interested in immigration prob-
lems than corporations, Straus was personally close to various New
York banking interests.

Key businessmen knew that Roosevelt relied heavily on Nelson
Aldrich, especially for banking and financial advice, and that major

131

machine politicians, such as Boise Penrose, could publicly proclaim
their alliance with Roosevelt without a denial from the President.
But their most important connection remained the Bureau of Corpo-
rations and its commissioners, first Garfield and then Herbert Knox
Smith. Garfield went to great extremes during the formation of the
bureau to assure that “the business interests of the country appreci-
ated that the Bureau was not to be used as an instrument of improper
Inquisition nor, as some of the extremists feared, blackmail.” Upon
leaving the bureau he wrote Straus that “the work of the Bureau has
shown the absurdity of the antitrust act,” and the need for federal
supervision. 23 Smith took virtually the same position as Garfield and
Roosevelt.

Important businessmen were fully aware and appreciative of the
policies of Roosevelt and his chief aides, and hardly succumbed to
the irritated clamor of the conservative press that criticized the
President on the basis of deduction from its abstract theories rather
than on an evaluation of his concrete actions. Roosevelt’s special con-
flict with Harriman, which initially had nothing to do with the ty-
coon’s conduct as a railroad operator, was caused by a conflicting
interpretation of the basis on which Harriman had donated funds to
the 1904 campaign. Until late 1905 their relationship was perfectly
amiable, and even after the breach in their relationship Roosevelt
never took antitrust action against any of the Harriman roads, de-
spite the fact that Harriman and Standard Oil became the criteria
for “bad” and “unreasonable” trusts. And big businessmen such as
Perkins, Gary, and the leadership of the National Civic Federation,
which included among its ranks Seth Low, August Belmont, Andrew
Carnegie, and John Hays Hammond, knew better than most of their
contemporaries that the Roosevelt Administration was eminently ac-
ceptable ideologically and politically.

The key to their appreciation of Roosevelt was his antitrust poli-
cies. During October, 1907, the National Civic Federation held a
large trust conference in Chicago to develop its viewpoint on the in-
evitability and desirability of the large corporation. “There is, in my
opinion, more danger to be feared from the ordinary tendencies of the
various States than from the present National Administration or any
future National Administration,” Isaac N. Seligman told the gathering.
Charles G. Dawes, Nicholas Murray Butler, Robert Mather, Herbert
Knox Smith, and numerous lawyers, businessmen, and public figures

132

ROOSEVELT AND BIG BUSINESS

rose to expound the basic principles of Roosevelt’s economic philos
ophy. At the conclusion of the convention, and virtually unanimously,
the gathering called for legislation to permit “Business and industrial
agreements or combinations whose objects are in the public interest
. . . the exclusion of unions and farmers’ organizations from the
jurisdiction of the Sherman Act, federal incorporation laws, and the
expansion of the publicity functions of various federal agencies regu-
lating business. They also called for a public commission to recom-
mend comprehensive trust legislation. 24

The Attempt at
Political Consolidation

Hie resolution of the National Civic Federation in 1907 repre-
sented an effort to unify a number of diverse currents inherent in the
nascent political capitalism being created in the United States during
the Roosevelt period. First, it appealed to the federal incorporation
movement and the widespread desire of many businessmen to free
themselves from state regulation by hiding behind the shield of the
federal government. Second, it reflected the desire of many business-
men to obtain an administrative agency ready to sanction anticom-
petitive action and provide security from possible state or federal
trust prosecutions — to provide stability and predictability in a politi-
cally and economically fluid climate. And third, the position of the
National Civic Federation on trusts reflected the hope of the Morgan
companies to place their detentes on a firm, legal footing that might
bind a political administration less sympathetic than Roosevelt’s.

The subsequent history of the resolution provides a significant
insight into the deep sentiment within the big business community
for the consolidation of a political capitalism, Roosevelt’s ambiva-
lence, and the entire relationship between business and government
in this period. The first important support for federal incorporation
and licensing came from the Industrial Commission, and reflected the
desires of Standard Oil more than any other single business interest.
And although the Bureau of Corporations picked up the themes of
federal licensing and incorporation by late 1903, bills to introduce
one or another form of regulation started being introduced in Con-

133

gress. Six distinct bills were submitted before 1907, and the most
important of these, submitted by Senator Francis G. Newlands in
May, 1906, was largely drafted by Herbert Knox Smith with the ap-
proval of Garfield. Smith and Garfield’s motives are clear; Newlands
was a pracdcal conservative Democrat who felt that national incorpo-
ration was the only way of heading off more drastic proposals for
economic reform and nationalization. The Newlands Bill permitted
mergers with proper capitalization and sharply restricted the scope of
state taxation. Although many big business leaders wanted a federal
incorporation or licensing law that would give the securities of their
companies the federal government’s stamp of approval, and protect
them from the states, Congress made no concerted action to pass any
bill.

Roosevelt’s transition to a supporter of federal incorporation or
licensing was inevitable, given his position that the federal regulatory
process should be supreme. In his 1905 Message to Congress he re-
iterated his belief in the supremacy of national government, in his
1906 Message he endorsed regulation “by a national license law or
in other fashion,” and in his 1907 Message he finally came out for a
federal incorporation law with a national commission to enforce it.
During October, 1907, just before his Message to Congress, Roose-
velt was apparently considering the entire issue seriously for the first
time. At the end of the month, upon receiving the resolution of the
National Civic Federation, Roosevelt wrote Seth Low, chairman of
the organization, that a federal incorporation law should be accom-
panied by “a modification of the Sherman law permitting combina-
tions when the combination is not hostile to the interests of the
people.” 26 When Roosevelt publicly endorsed federal incorporation
in December, the stage was set for action.

The idea of a revision of the Sherman Act and advance govern-
ment approval of mergers or big business actions greatly attracted
many businessmen. At the same time, not a few capitalists, especially
those supporting the National Civic Federation, were willing to pay
deference to conservative labor unionism in theory if not in practice,
especially if they could obtain labor’s political support for revisions
of the Sherman Act that might provide big business with stability and
political security.

As soon as the National Civic Federation’s position on trust regu-

134

ROOSEVELT AND BIG BUSINESS

lation was formulated, and Roosevelt’s statement on federal incorpo-
ration strengthened, Francis Lynde Stetson and Victor Morawetz, a
major railroad attorney with Morgan connections, began drafting a
bill. Gary was frequently consulted about general principles, and
from time to time Herbert Knox Smith was asked for advice. Perkins
also became involved in the political and legislative aspects of the
measure, and on February 27, 1908, met with Samuel Gompers and
other labor leaders and won their support. The bill, in brief, was
virtually the total creation of the House of Morgan.

Perkins was unsure of Roosevelt’s attitude toward the bill Rep.
William P. Hepburn was introducing for the National Civic Federa-
tion, but he was confidently willing to experiment. The bill was pre-
sented as an amendment to the Sherman Act, and was fairly simple.
Any corporation could voluntarily register its financial status, con-
tracts, and vital data with the Bureau of Corporations. Once regis-
tered, a corporation could file any proposed contract or merger with
the Commissioner, and if the Commissioner did not declare the pro-
posal illegal within thirty days the government effectively removed its
right to prosecute the company under the Sherman Act. Railroads as
well as industrial corporations could register under the law, and
individuals were granted the power to sue corporations for alleged
injuries in U.S. Circuit Courts. And, most controversial of all, unions
and strikes were explicitly removed from the jurisdiction of the
Sherman Act.

The Hepburn Bill was introduced in March, 1908, and an im-
mediate attempt was made to pin Roosevelt’s approval to the meas-
ure. During early March Seth Low visited Roosevelt twice, and
although he seemed to give his approval the first visit, the second
time Roosevelt asked for a few small revisions. On March 11, Roose-
velt discussed the entire matter with Stetson, Low, Gary, Gompers,
and Herbert Knox Smith, and after they accepted his suggestion that
railroads be excluded from the bill, Stetson felt Roosevelt had “sub-
stantially agreed upon a bill. . . .” Despite Stetson’s confidence, the
fact remained that Roosevelt was undecided about the entire Hep-
burn Bill. On the one hand Herbert Knox Smith advocated a “nation-
alization of the legal conditions of corporations,” and helped
formulate the bill. Although Roosevelt had long advocated an identi-
cal position, Attorney General Bonaparte strongly opposed the meas-
ure and Roosevelt’s philosophy of “good” and “bad” trusts embodied

135

in it. His major line of attack was the difficulty of courts’ defining
“reasonableness,” and the mass of paper work such a law would
create. 26

Roosevelt was frankly sympathetic to the assumptions motivating
the Hepburn Bill, but the major liability of the bill, as he privately
saw it, was its provision excluding labor from coverage under the
Sherman Act. The proponents of the bill continued their campaign to
convince the President. Perkins went to Washington to obtain Root’s
and Aldrich’s support, and had International Harvester and Charles

G. Dawes, the powerful Chicago banker, join the fray on his side.

During late March and April the House Committee on the Judi-
ciary held hearings on the Hepburn Bill, and Seth Low appeared as
the major spokesman for it. Low freely admitted that Stetson and
Morawetz were in charge of the primary drafting of the bill, but other
important capitalists consulted and endorsing the measure included
Gary, Samuel Mather, Henry Lee Higginson, Robert Mather, Isaac
N. Seligman, James Speyer, W. A. Clark, August Belmont, and J.

H. Ralston. The bill was frankly designed to avoid the legal disputes
over federal-state powers that would result from a federal licensing
or incorporation law, but it intended to achieve the same ends. Its
philosophy was identical to Roosevelt’s theory of the “reasonable”
combination, and publicity was its primary tool for enforcement. And
its major asset was to give business assurance that it would not be
subjected to political attacks while trying to stabilize its own affairs.

Opposition to the bill centered almost exclusively on the labor
clause. The National Association of Manufacturers strongly opposed
the bill because of the clause, but was sympathetic to federal incor-
poration, which its special committee on the topic in 1908 declared
would be “a national blessing . . . and protect one corporation from
the oppression and rapacity of another.” Andrew Carnegie endorsed
the basic idea of the bill, but he wanted the administration of it
handed over to a special commission — a proposal Low was ready to
accept. The strongest opposition to the measure came from small
business, merchants, and a few influential associations such as the
Merchants’ Association of New York and the New York Board of
Trade and Transportation. Perhaps their emphasis on the question
of excluding trade unions was purely opportunistic, but their fre-
quent endorsement of federal regulation was certainly sincere in
past instances. 27 It was clear, however, that in return for labor sup-

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ROOSEVELT AND BIG BUSINESS

port the big business elements pushing the Hepburn Bill also won
considerable small business and merchant opposition.

On March 25, Roosevelt sent a special message to Congress deal
ing primarily with the antitrust law. The message, on its face value,
encouraged the advocates of the Hepburn Bill. “In the modern in-
dustrial world combinations are absolutely necessary,” Roosevelt
announced again. Such combinations had to be permitted not only
in business, but among farmers and labor unions as well. The anti
trust law needed modification, and, referring to the Hepburn Bill,
Roosevelt said “Some such measure as this bill is needed in the in
terest of all engaged in the industries which are essential to the coun-
try’s well-being.” 28 Roosevelt suggested a few minor modifications
of the bill, and by his absence of comment implicitly endorsed the
entire bill in principle and the labor clause in particular.

It is not clear why Roosevelt sent his March 25 Message to Con
gress, but his heart was not in it — indeed, the message reeked of
duplicity.

In late March, at virtually the same time, the Cabinet met and
discussed the Hepburn Bill. Roosevelt indicated that he opposed the
proposal because of its labor section. But to come out against a bill
because of his fundamentally antilabor views was politically impos-
sible, not only for himself but for the Republican Party. Roosevell,
in his own paternalistic way, was fond of calling himself a friend
of labor, and now that he had a chance to prove it he failed abys
mally. What followed was a series of crude rationalizations. On April
1 , he wrote Seth Low that he might have to veto the bill because of
its reliance on the courts for a definition of the term “reasonable,”
a matter that should be left to an executive agency in order to allow
“proper control of the great corporations.” On April 9 he again
wrote Low that the “Stetson-Morawetz” bill “would be worse than
passing nothing,” and would be “ruinous politically.” It would give the
corporations “the chance to go into improper combinations without
molestation.” 29 Roosevelt was being dishonest with Low. The bill, in
fact, left the determination of “reasonable” with the Bureau of Cor-
porations, an executive agency, and the very concept of a reasonable
trust was one that he had advocated for years. His real reason for
opposition was the labor section of the bill, which he thought would
lead “to the legalization of the blacklist and the boycott,” and he
freely admitted this to Herbert Knox Smith. 80

137

During April the effort to force Roosevelt to actually endorse the
Hepburn Bill continued. “The objection comes from the mercantile
element, as distinguished from the corporation element,” Seth Low
tried to reassure him . 31 The bill embodies your view; why not en-
dorse it? Low asked. Roosevelt apparently felt sheepish about his
reticence, and passed the entire matter over to Smith, whom he asked
to give the Administration position before the House hearings.
Smith’s presentation to the committee reflected Roosevelt’s public
ambivalence. While he refused to endorse the bill in its entirety, he
proposed only minor amendments and effectively approved of those
sections not referring to labor. Perkins tried to interpret Smith’s po-
sition as an Administration endorsement of the bill, but Smith pri-
vately told Seth Low that the labor section was the major obstacle
to Administration support.

By the end of April Roosevelt’s obstinacy proved too much for
the National Civic Federation, and some of its key leaders were pre-
pared to temporarily give up the campaign to pass the bill. Although
Perkins wished to continue the fight for the Hepburn Bill, perhaps
because he feared Taft might be less responsive to Morgan needs than
Roosevelt and he might lose the opportunity of legally consolidating
the detente system, the bill was dropped. It is ironic that Roosevelt’s
consistently favorable attitude toward the desires of the House of
Morgan should have been broken on the question of the trade union
movement.

In July, as a part of Standard’s effort to arrange a detente with
the federal government, Senator Jonathan Bourne, Jr., wrote Roose-
velt about enacting antitrust legislation with Standard’s backing.
Roosevelt’s response was curious, given the fact that Standard’s offer
of support was rejected. He would make an effort during the next
session of Congress to pass a federal incorporation bill drafted by one
of his agencies or the National Civic Federation. In a defense of big
business sponsorship of federal regulation — a defense that ignored
motives — Roosevelt wrote “I have not the slightest patience with the
foolish creatures who oppose a good measure because big corpora-
tions are wise enough to see that it is a good measure and to advo-
cate it. . . .” Despite this generous position, Roosevelt continued to
oppose the Hepburn Bill when a revised version was resurrected in
November, and took no action on federal incorporation either. Bona-
parte encouraged his opposition, although when John R. Dos Passos,

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ROOSEVELT AND BIG BUSINESS

the great promoter, presented an alternative measure Bonaparte was
friendlier . 32 Roosevelt did not agree with Bonaparte’s skepticism as to
the distinction between reasonable and unreasonable trusts, but he
preferred the informal detente system and was sufficiently antilabor
not to want to lose a club over potential union radicalism. His cor-
porate ideology remained constant, and he was unwilling to accept the
position of a George Perkins who was prepared to take unions into a
rationalized, predictable establishment as a junior partner. His rhet-
oric, despite his actions, did not vary throughout this period. Roose-
velt’s political capitalism had a stronger element of paternalism in it
than even that of Perkins and the National Civic Federation.

CHAPTER SIX □□□□□□

THE

FAILURE OF
FINANCE
CAPITALISM,
1890-1908

historians have commonly viewed the financial structure at the
be ginnin g of this century as highly centralized and tightly controlled.
Certainly this was the preponderant contemporary view of the mat-
ter. “What is taking place is a concentration of banking that is not
merely a normal growth but a concentration that comes from com-
bination, consolidation, and other methods employed to secure mo-
nopolistic power,” lamented the Wall Street Journal in describing the
entry of banking into corporate finance. The Morgan of Brandeis’
Other People’s Money was an unrivaled, powerful mogul who com-
manded the entire financial structure almost arbitrarily — the Pujo
Committee’s Morgan. Morgan, suggested Lincoln Steffens, was a

139

140

FAILURE OF FINANCE CAPITALISM

sovereign; he was the keystone of the financial structure, according
to Lewis Corey. 1

Morgan and Wall Street were, without a doubt, very powerful
factors in the American economy. But had the complete centraliza-
tion of capital been the dominant fact of the financial structure at
the beginning of this century, the proliferation of new entries into
most industries and the failure of the merger movement to establish
industrial control would be inexplicable. For central finance would
have withheld funds from undesirable competitors. Clearly, a much
more complex situation existed, and the extent of this complexity
has not been fully appreciated. The crucial fact of the financial struc-
ture at the beginning of this century was the relative decrease in New
York’s financial significance and the rise of many alternate sources
of substantial financial power.

Throughout the 1870’s and much of the 1880’s, by far the larg-
est number of banks were national banks, with their financial stand-
ards determined in Washington. By 1896, however, non-national state
banks, savings banks, and private banks accounted for 61 per cent
of the total number of banks, and by 1913, 71 per cent of the banks.
The capital and resources of these non-national banks were small in
the immediate post-Civil War period, but in 1896 constituted 54
per cent of total banking resources, and in 1913, 57 per cent.

The advantages of state banks were clear. The National Banking
Act imposed relatively high capital requirements on national banks
for issuing checks — $50,000 until 1900, $25,000 thereafter — and
prevented their opening savings departments, prohibited the exten-
sion of real estate mortgage credit, and made domestic and foreign
branch banking illegal. State banking laws, especially in the 1890’s,
became far more lenient in such crucial states as Michigan, Cali-
fornia, and New York. Bank mergers were difficult for national
banks, and large banks were forced to adopt the often unreliable
method of interlocking directorates as a means of control. Moreover,
national banks could not lend more than one-tenth of their capital
to one borrower, and this meant that in 1912 there were only about
sixty national banks that could lend more than $500,000 to one
company. Larger national banks watched with considerable distress
the growth of state banks. In California the young Bank of America
was beginning to extend its power throughout the state by its ag-
gressive policy of branch banking. The major New York banks also

141

disliked having to compete, with interest on demand deposits and
collections at par of out-of-town items, for the important deposits
of state banks, most of which were loaned out as call-loans on the
New York Stock Exchange. As one banker put it, “We love the
country bankers, but they are the masters of the situation. We dance
at their music and pay the piper.” 2 And New York also found itself
in the precarious situation, under such an arrangement, of being sus-
ceptible to heavy withdrawals of funds.

In 1903 the New York Clearing House tried to impose national
reserve requirements on its rapidly growing state trust companies.
Seventeen of them walked out and did not return until 1912. At the
same time, some of the major national banks started accommodating
to the new realities by organizing corporations for the purpose of
buying state banks. And in 1903 the state-chartered Bankers Trust
Company was organized with Morgan backing to compete with the
independent state trust companies. J. P. Morgan and Co. were fully
aware of the diffusion of banking power that was taking place through
the state banks, and it disturbed them.

This diffusion and decentralization in the banking structure seri-
ously undercut New York’s financial supremacy. “There are some
facts which seem to suggest the question whether our city may prove
able to retain its past proportion of the vast settlements of this ever-
growing continent,” Henry Clews, the New York banker, said in
1888. “. . . and, although there is nothing to warrant very positive
opinions about the future, it must be conceded as an unquestionable
historic fact that in late years there have been symptoms of positive
decadence in the status of our financial metropolis. . . . the natural
development of national production of commerce is to build up inde-
pendent financial centres of the interior, the effect of which can only
he to check in some measure the growing ascendancy of New York.” 3
Clews was correct in his estimate. Chicago’s and St. Louis’ growth
were exceptionally rapid — the dollar value of the clearings of the
Chicago Clearing House increased 410 per cent from 1866 to 1885,
while New York’s declined 12 per cent. In 1887 the National Banking
Act was amended to allow cities with a population of over 200,000 to
become central reserve cities, and hold the balances of smaller u-
serve cities of over 50,000 persons and country banks. Chicago and
St. Louis immediately qualified, depriving New York of its exclusive
status, and their bankers’ balances and individual deposits, which

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FAILURE OF FINANCE CAPITALISM

had been only 16 per cent of the combined total of the three cities
in 1880, increased to 33 per cent by 1910. The growth of smaller
reserve cities was even more rapid. The dollar value of bank clear-
ings of major cities outside New York was 24 per cent of the national
total in 1882, 43 per cent in 1913. Henry P. Davison, Morgan’s part-
ner, declared in 1913 that New York’s share of the nation’s banking
resources fell from 23 per cent in 1902 to 18 per cent in 1912.

Davison, Clews, and the New York banking community were
well aware of their own relative decline and the growing diffusion of
banking power and decision-making. Clews pondered about the prob-
lem in 1888 and came to the conclusion that New York’s dominant
role as a distribution point for imports and exports, and as a center
of the nation’s internal commerce, was being undermined. Even New
York’s position of supplying Midwestern and Western jobbers was
being taken away from it by the giant manufacturers and distributors
emerging in those areas. 4 There is ample evidence to suggest Clews
was correct.

The power of J. P. Morgan and Co. was based initially on its
ability to sell railroad stocks and bonds in the English and European
markets. European investors placed $2.4 billion in the United States
during 1880-1895, and owned a total of $4.5 billion in government
and nongovernment bonds and shares in 1914. Morgan’s activities
in 1895-1896 in selling U.S. gold bonds in Europe were based on
his alliance with the House of Rothschild; these activities added to
Morgan’s reputation as a rescuer of governments. That reputation
was often the key to his power, and it lasted long after the power was
greatly diluted. Morgan and a few large bankers saved the New York
Clearing House in 1893, and, seemingly, the United States’ financial
standing only a few years later. Accomplishments of this magnitude
enhance one’s reputation indeed!

So long as large loans had to be placed in the European market,
and so long as New York was the undisputed leader of American
banking, Morgan’s power was correspondingly great. Despite the fact
that Morgan maintained the homily that character was the basis of
commercial credit, and not money or property, it can be shown that
Morgan’s deficiency of sufficient amounts of all three seriously under-
mined his position after 1900. Morgan was swept into the industrial
merger field, and the prestige of his firm allowed him to become the
most important promoter. Since Morgan insisted on retaining sub-

143

stantial managerial control of his usually overcapitalized mergers, he
must accept responsibility for their not altogether brilliant subsequent
histories. We have already discussed the failure of International Mer-
cantile Marine, the decline in the market shares of United States
Steel and International Harvester, and the general fact that the finan-
cial record and stability for Morgan’s promotions were no higher
than par. Even Morgan could not overcome basic trends working
against the success of the merger movement. Perhaps more significant
was his inability to float American Telephone and Telegraph’s 1907
bond issue, for it meant that Morgan, in a declining economy, was
quite weak. The fact that he, unlike most others, retained control of
management, forces one to conclude that in the process of trying
to have his overcapitalization and organizational success as well,
Morgan far overtaxed his financial powers and managerial abilities.

The ability to parlay key minor shareholdings into control of a
powerful economic instrument also increased the dangers of com-
petition. For better or worse, control of the majority of stock of a
corporation was not the prerequisite for control of the corporation
even in 1900, and ownership of a minority of stock coupled with
active participation in management was often sufficient to exercise
the total power of the corporation, both in relation to the general
social order and in relation to actual or potential competitors. The
railroads were generally controlled with less than 20 per cent of the
stock. Even Morgan kept control of most of his properties with
minority ownership. Harriman owned less than one per cent of the
Union Pacific’s shares in 1900, and 23 per cent in 1906. James J.
Hill claimed he owned 2 per cent of the Great Northern’s stock when
he ran it.

Morgan in the 1890’s could successfully maintain his independ-
ence in then significant flotations of $50-100 million. The sheer mag-
nitude of many of the mergers, culminating in U.S. Steel, soon forced
him to modify his stand, though at times he would have preferred
total control. More important, by 1898 he could not ignore the mas-
sive power of new financial competitors and had to treat them with
deference. Standard Oil, utilizing National City Bank for its invest
ments, had fixed resources substantially larger than Morgan’s, and
by 1899 was ready to move into the general economy. Allied with
Harriman and Kuhn, Loeb, this group was as powerful as the

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FAILURE OF FINANCE CAPITALISM

Morgan-George F. Baker (First National Bank of New York)-Hill
alliance. The test came, of course, in the Northern Securities battle,
which was essentially an expensive draw. Morgan and Standard paid
deference to each other thereafter, and mutual toleration among
bankers increased sharply. Morgan, however, was always reluctant to
accept Kuhn, Loeb as an equal, and in his 1906 flotation of A.T.
& T.’s bonds he refused to allow Lee, Higginson to participate be-
cause of its alliance with Speyer and Company of New Y ork. At the
same time, the First National Bank of Chicago and the Illinois Trust
and Savings Bank, among others, were largely independently direct-
ing substantial Midwestern capital into investment banking.

George F. Baker called Morgan the leader of Wall Street, and
the designation is more correct than incorrect. George M. Reynolds,
president of one of the largest hanks in America, the Continental and
Commercial National Bank of Chicago, realized that most of the
antibanker sentiment was directed against Wall Street, and happily
baited his erstwhile allies by telling the Pujo Committee in January,
1913, that “I am inclined to think that the concentration [of finance
and credit], having gone to the extent it has, does constitute a men-
ace.” 5 Big bankers, then, were always very cautious of one another.
But they needed each other for large security flotations, and competi-
tion could be costly. And by 1907 the old tycoons were growing old
and were less ambitious — at least to the extent of being willing to
pay greater deference to one another. A benign armed neutrality,
rather than positive affection, is as much a reason as any for the high
number of interlocks among the five major New York banking
houses.

In 1907 a greater challenge to Wall Street overshadowed mutual
rivalries and surreptitious aid to competitive industrial interests. The
panics of 1879 and 1893 were weathered by the New York banks
without decisive government intervention. The crisis of 1907, on the
other hand, found the combined banking structure of New York
inadequate to meet the challenge, and chastened any obstreperous
financial powers who throught they might build their fortunes inde-
pendently of the entire banking community. This crisis, discussed in
detail later in this chapter, marks the conclusion of the New York
banking community’s consciousness of its own inadequacy. The na-
tion had grown too large, banking had become too complex. Wall
Street, humbled and almost alone, turned from its own resources to
the national government.

145

The ability of industrial corporations to finance their own growth
meant a corresponding decrease in the power of finance capital,
which in turn allowed competition to arise and new firms to develop
quite freely of finance capital. For mergers that did not have to
bother with their promoters meddling in their managerial policies,
it meant an ability to break free of their initial financial roots and
follow an independent course. This, roughly, is what happened in
many instances.

During 1899-1904, the intense merger period, a large part of
corporate finance came from external sources. For the entire period
of 1900-1910, however, 70.4 per cent of the new funds in manu-
facturing came from internal sources, and this led to a general inde-
pendence from outside financial power. Indeed, since 1900 the
formation of capital from external financing has not altered appre-
ciably, and this has meant a corresponding decline hi the power of
finance capital institutions. In some industries nearly all the invested
capital of successful firms came from profits; this was especially true
for such new industries as automobiles, in which General Motors
was the exception. And the banking community was fatally conserva-
tive in investing in new ventures. Standard Oil financed itself, and
with its accumulated power then moved into the financial structure
in a massive way. It was Du Pont, not Wall Street, that gave the
first substantial support to any auto company and thereby acquired
the dominant position in the industry. Such diversification from in-
dustry into finance or other industries — as in the case of autos and
newspapers buying into or creating newsprint firms — meant a multi-
plication of significant financial groupings and a diminution of the
power of the older investment and banking houses.

The very nature of the National Banking Act forced many com-
panies to choose between the risks of self-financing and reliance on
investment houses. Many chose the former and a sufficient number
succeeded, radically affecting the distribution of financial power.
Since a national bank could not lend more than one-tenth or ils
capital to one source, even as late as 1912 there were only twelve
banks able to loan more than $1 million to one firm. This compelled
most companies to rely on many banks rather than become dependent
on any one, to try to finance their own expansion, or to turn to the
investment houses. But the major New York houses were not avail-
able to many newer companies, much less aspiring competitors of
mergers, and this led to the development of local investment houses

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FAILURE OF FINANCE CAPITALISM

more often than not dependent on specific industrial firms, and the
creation of new dependent banks that were the adjuncts of industrial
concerns in the smaller communities. At the same time, the merger
movement provided substantial capital to the former owners of com-
panies, and the very availability of funds to create the giant combina-
tions also led to an availability of funds for the creation of new and
often competing firms. The financial structure was too complex, too
fluid. The Money Trust sitting in New York could not, despite Bran-
deis’ allegations, control competition and entry through their direc-
tion of credit. 6 The economy by 1910 had moved well beyond the
control of any city, any group of men, or any alliance then existing
in the economy. The control of modem capitalism was to become
a matter for the combined resources of the national state, a political
rather than an economic matter.

Banking Reform Movements,

1893-1903

The conventional historical interpretation of financial reform in
the 1890’s has assumed that silver and Bryanism were the dominant
movements of the time, and that the banking and business commu-
nity took an essentially standpat position on reforms of any type.
Silver, Bryan, and Populism were, without question, the only politi-
cally meaningful movements of financial reform in the 1890’s, and
the banking and business community opposed them all without any
equivocation whatsoever, but most bankers in the 1890’s and after
were not standpatters. Quite the contrary, they favored financial re-
form — their kind of reform, for their own ends.

“From the time I came to Chicago in 1892 the necessity of new
banking and currency legislation was appreciated by most bankers,”
James B. Forgan, the leader of Chicago banking recounted, “and
the subject became a live one.” 7 The major liability of the existing
banking laws, in addition to aiding the diffusion of resources and
the spread of small banks, was the inelasticity of the currency supply
during certain times of the year and the inability of the banking sys-
tem to move circulating media to areas with ample commercial credit
but insufficient loan funds. Bankers tried to meet the problem with a

147

wide variety of reform schemes. Bank notes secured by government
bonds were safe, but did not provide sufficient elasticity, and various
schemes to issue notes on bank capital were advanced. Some of these
plans included cooperative reserve funds to pay off the notes of bank-
rupted banks.

The depression of 1893 increased the agitation for financial re-
form not merely among fanners but among bankers as well. At its
1894 convention, the American Bankers Association endorsed “the
Baltimore Plan” for banking legislation. The heart of the plan was
the issuance of new currency protected by a joint guaranty fund of
all issuing banks. Despite the fact that it was formulated by a major
New York banker, A. Barton Hepburn, it was met by indifference or
hostility by the larger banks. Nevertheless, the topic of reform was
raised at virtually every subsequent meeting of the A.B.A.

Banking reform became almost exclusively a banker’s issue, and
certain businessmen, such as Carnegie, feared banking reforms of any
sort. But various banker schemes continued to pour into Congress.
Some asked for clearing house currency and bills of issue on bonds
and a variety of securities as means of overcoming the currency short-
age. Not a few of these plans were carefully formulated, and some
were actually presented to Congress as bills. George A. Butler, a New
Haven bank president, campaigned for circulating notes issued by the
Comptroller of Currency up to 75 per cent of paid up capital, and a
common reserve fund. A bill submitted by Senator Daniel W. Vorhees
of Ohio to the 53rd Congress would have allowed banks to issue cir-
culating currency equal to the par value of U.S. bonds deposited as
security; it received much banker support. Rep. Joseph H. Walker of
Massachussets introduced a bill in 1896 to allow national banking as-
sociations run by the banks to issue new notes based on coin and legal
tender and a large proportion of old greenbacks. And Rep. Charles
Fowler of New Jersey, a friend of banking, submitted a plan to permit
banks to issue notes equal to one-fifth of their unimpaired capital. 8

Although the demand for reform was substantial among bankers
conscious of economic problems, none of these plans obtained a sig-
nificant following. During 1896 a group of merchants entered the
scene and added momentum to the banking reform movement. In late
1896 the Indianapolis Board of Trade decided to channelize the senti-
ment for banking reform into a national convention to consider the
entire problem. Aided by various boards of trade and supported by a

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FAILURE OF FINANCE CAPITALISM

advance, and various attempts to revive the Fowler measure over the
next year failed. Many small bankers favored greater currency elas-
ticity, especially based on commercial assets, but they were not going
to allow their throats to be cut without a fight. Resolutions from Mid-
western states and bankers convinced House members it would be
politically judicious not to vote for a bill endorsed by big bankers.

Despite the failure of Congress and the President to act decisively
for the legislation the major bankers desired, the federal government
did take steps to try to stabilize the money market and banking sys-
tem. Even before Roosevelt became President, Secretary of the Treas-
ury Gage made a practice of depositing ever-increasing amounts of
public funds in banks, and as government revenue increased due to
taxes imposed during the Spanish-American War, the government be-
came a more powerful factor in the money market. The big bankers
were pleased when Leslie M. Shaw, who succeeded Gage in 1902,
eased the type of collateral bonds and eliminated the cash reserves re-
quired for government deposits. Even these valiant efforts to make the
Treasury a much greater factor in central banking were to little avail
The diffusion of American banking continued away from New York,
and the rise of the merger movement and a market for industrial secu-
rities sharply increased the amount of speculative activity in finance.
Indeed, as the money market became increasingly geared to the needs
of stock speculation, Roosevelt and the federal government did vir-
tually nothing to control the trend, and in fact had little power or au-
thority upon which to act. More important, until 1907 there was no
special concern with this problem. 11

Roosevelt and
Banking Reform

Financial problems confused Roosevelt. He admitted his igno-
rance of the topic and caused despair among those members of Con-
gress interested in some type of reform. “I do not intend to speak,
save generally, on the financial question because I am not clear what
to say . . . ,” Roosevelt wrote Grenville M. Dodge early in 1903. On
financial matters he kept in contact with Nelson Aldrich, Orville Platt,
Perkins, and other conservative spokesmen who, although often dis-

151

agreeing with each other on details, were perfectly safe. Roosevelt ex-
ploited this disagreement as a convenient way to avoid confronting the
Issue seriously. He did not support the Fowler Bill or the Aldrich Bill
of 1903, in large measure because “one great trouble has been the
absolute inability to get anything like unity of judgment among the
llnanciers.” 12 Besides, “Uncle Joe” Cannon, speaker of the House, op-
posed any financial legislation — even minor changes. Cannon and a
few others in Congress wished to put off acting on financial matters
for fear of aggravating the speculators’ panic of mid-1903. 13 So long
es he could not get agreement among the leaders of both branches of
Congress, Roosevelt was willing to let the matter slide.

The existence of financial instability only increased the desire for
action among big banking and other conservative circles. Orville Platt,
Aldrich, and various Morgan men continued to press Roosevelt, but
to no avail. “When we were there,” Platt reported to Aldrich concern-
ing a visit to the White House, “he seemed to fall in with our opinions,
but when Shaw, Carlisle and Cullom ventilate their ideas, he is just as
opt to side with them. He will mix and muddle this thing all up I
fear.” To please Aldrich, Roosevelt proposed a few minor changes in
the banking structure to “give confidence to the business community,”
but at least Platt felt no real action would be forthcoming. Roosevelt,
for his part, tried to placate the pro-legislation bankers by at least
tul king with them and paying deference to their views. He invited
Morgan, E. H. Hardman, Henry Lee Higginson, and H. C. Fahnestock
to discuss the financial situation, and since they could not agree among
themselves on what changes were desired, Roosevelt used their divi-
sions as an excuse to justify his own indifference and ignorance of the
matter. 14

A sufficient number of bankers wished action, however, for Roose-
velt to consent to the enlargement of the central banking functions of
the Treasury from late 1903 on. Bankers, including a few small ones,
were disappointed by the lack of legislative action, but Secretary of
the Treasury Shaw offered them a temporary solution that did not
need the approval of the legislative branch and which offended no one.
From late 1903 Treasury monies, and not merely current revenue,
were placed in depository banks as needed, allowing the Treasury
over the next few years to regulate the flow of money and place re-
serves in strategic cities — providing a small measure of long sought-
after elasticity. Still, after 1903 Roosevelt and Aldrich ignored the

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FAILURE OF FINANCE CAPITALISM

issue of financial reform, and prosperity removed the pressure foi
action and made the topic comparatively esoteric for several years.

Conservative financial leaders in New York and Chicago wen-
nevertheless completely aware of the possibilities for financial insta
bility inherent in the diffusion of the banking system and the rigidity
in the supply of money. Henry Clews, always ready to comment on
the matter, urged federal regulation to create an elastic currency based
on commercial assets and a wider variety of bonds. And decisively
new alternatives for reform were presented for discussion, especially
by New York and Chicago financial interests. Earlier plans for reform
had concentrated primarily on elasticity, and bank cooperation was
restricted to proposals for essentially cooperative clearing house asso
ciations backed by the federal government. By 1906, however, much
more extensive proposals for banking control were put forth. In Janu-
ary, 1906, Jacob H. Schiff warned the New York Chamber of Com-
merce that unless the currency system were reformed the country
would face the most serious financial crisis of its history. The warning
immediately led to the formation of a special committee within the
Chamber to propose legislation. In March, the committee, composed
of John Claflin, Frank A. Vanderlip, Isidor Straus, and similar big
banking and investment leaders, recommended the creation of a far-
reaching central bank “similar to the Bank of Germany,” with the
power to regulate currency supplies. Although the report was not sup-
ported by the New York Chamber as a whole, it is indicative of the
extent to which big bankers were ready to revamp the entire banking
structure in the hope of centralizing it. The American Bankers Asso-
ciation, during mid-1906, also organized a commission of big bankers
representing the major cities of the nation, chaired by A. Barton Hep-
bum. Its report, released in November, 1906, declared “that changes
in the existing bank note system are imperatively required.” 15 Al-
though not endorsing a central bank, the committee urged the crea-
tion of regional clearing houses through which bond-secured currency
could be issued by banks in varying amounts and guaranteed by a
common fund built up by taxes on such notes.

Such plans obviously differed, although their purported ends were
identical, and Roosevelt used such distinctions as an excuse for avoid-
ing serious action on financial reform. In his Annual Message to Con-
gress in December, 1906, Roosevelt decided at least to acknowledge
publicly the need for greater elasticity in the banking system. Al-

153

though he carefully avoided endorsing any specific plan, he referred
to Secretary Shaw’s modest proposal for permitting national banks to
issue temporary notes up to a certain proportion of their capital. The
President remained unwilling to move decisively.

The Panic
of 1907

Insofar as there were bankers who thought about the problems of
banking, by 1907 virtually all of them wanted federal reform legisla-
tion. 1906 had been a year of considerable stringency for financing
and loans, and in late 1906 the currency commission of the A.B.A.
and the special currency committee of the New York Chamber of
Commerce merged their plans and had the combined plan introduced
in the House by Rep. Fowler. But since neither Aldrich or Roosevelt
approved of it, no action was taken on the bill, despite the A.B.A.’s
strenuous support. Roosevelt informed Fowler that “it is useless to ex-
pect and a waste of time to ask for radical legislation at this session,”
and instead recommended the passage of a few minor measures, in-
cluding a very conservative asset currency. 16 Such a measure to in-
crease the central banking functions of the Treasury was, in fact,
passed in 1907 as the Aldrich Bill, but without any asset currency
provisions.

If J. P. Morgan had been, as many historians have assumed, the
controller of the American financial structure, he would not have sat
by during the obvious approach of the panic of 1907. Nor would he
have turned to the federal government for salvation. In mid-March,
1907, after it became apparent that the financial stringency of 1906
would continue and the New York Stock Exchange experienced a
sharp decline in prices, Morgan visited Roosevelt to ask about general
government aid in the crisis. Roosevelt, according to the financial
press, reassured Morgan that he would act responsibly not only in
reference to financial matters but also in general industrial and rail
road affairs upon which the ultimate health of the financial community
was based. Shortly thereafter the Treasury began depositing large
amounts of customs receipts in various banks and reducing its normal
withdrawals of government funds. But despite this earnest gesture the

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FAILURE OF FINANCE CAPITALISM

shortage of money in New York continued, and Morgan sat by and
watched inexorable fate move in for a reckoning with the speculators
and weaker freebooters.

Not a few businessmen tried to blame financial conditions on the
negligible antitrust activities of the President and their purported
influence on financial “confidence.” Historians have made much of
this alleged breach of communication between Roosevelt and the fi-
nancial community. Roosevelt tried to deny any responsibility for ex-
isting conditions, and it is difficult to believe that the major bankers
did not accept his denials. After all, Morgan certainly knew of the
convenient detentes with his interests, the railroads were pleased with
the initial impact of the recent Hepburn Act, and the antitrust laws
meant very little to the general business and financial community, save
for Standard Oil. More important, Roosevelt’s Treasury policy was
designed to merely provide greater interest-free financial resources to
the bankers without in any way defining or limiting the way in which
they could be used. Insofar as Roosevelt did not take steps to inhibit
the growing speculative activities of the bankers, he does share re-
sponsibility for the panic of October, 1907 — but in this respect he
aligned himself with the financial community.

Most bankers, in any event, were strangely indifferent to threats of
impending crises, even as commercial loans in New York and Chicago
became virtually unavailable at any price. Meeting at Atlantic City in
September, all but 150 of the 2,000 members of the American Bank-
ers Association present ignored the session on financial reform, pre-
ferring the beaches to discussions of means of saving themselves.
Roosevelt's new Secretary of the Treasury, George Cortclyou, brought
in to replace Shaw after certain of Shaw’s private business dealings
threatened a scandal that never materialized, took matters into his
own hands. Indeed, after the Treasury began depositing five million
dollars a week in national banks from early September on, it was
obvious that the government would assume primary responsibility in
meeting the crisis. 17

During the early weeks of October the Hamburg and Amsterdam
banks underwent a crisis and forced gold to be shipped from the
United States. A crisis on the Montreal Stock Exchange followed, and
Wall Street was shaken to its foundations. On October 16 the stock of
the United Copper Company collapsed and threatened to take three
important New York banks with it. The New York Clearing House

J55

Association rushed to their aid, but a run on the Knickerbocker Trust
Company forced it into bankruptcy on October 22. Then came the
most trying and chastening experience in the history of the banking
community.

The panic of 1907 was an indication of the extent to which the
ability to control crises had moved out of the hands of the New York
bankers. If it were merely a question of raising $50 million in a
healthy European financial market, as in 1895, Morgan would have
been able to handle the task. But the American economy, and the
scale of its needs, had grown tremendously, and it was as much af-
fected by conditions outside New York as in the city itself. By 1907,
Morgan, Stillman, and other key leaders of finance were old men, and
the strain of the situation was more than they could bear financially
or psychologically. Moreover, Morgan and others were not being
called upon so much to save themselves as they were to rescue the
improvidently run trust companies that had mushroomed as a part
of the banking diffusion that had taken place since the turn of the
century.

On October 23 the Trust Company of America and the Lincoln
Trust Company began tottering, and their threatened collapse prom-
ised general financial depression and bankruptcy. The day before,
however, Cortelyou rushed to New York and met with Morgan, Still-
man, George Baker, Perkins, and other leading bankers. He agreed to
deposit $25 million with the major New York banks immediately “for
the relief of the community generally.” The banks could loan the
money, which was interest-free, to whomever they pleased, including
stock brokers and speculators; the substantial added interest on the
loans remained with the bankers. Over the next eight days the govern-
ment loaned an additional $10 million for the relief of trust compa-
nies, and plunged a total of $37,697,000 into New York. At the same
time, Morgan and his associates, in a series of around-the-clock ses-
sions that exhausted the men, decided they would all suffer the conse-
quences unless a financial pool was formed to support the weaker
trust companies and the stock market. But even substantial pledges of
private funds were insufficient, especially since none were used, and
within a few days the New York Clearing House was forced (o sus
pend currency payments on behalf of clearing house certificates. ( >n
October 28, after shipping out nearly $30 million of their reserves to
country banks in the South and West, the Chicago Clearing House

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FAILURE OF FINANCE CAPITALISM

also suspended cash payment on behalf of certificates. Currency scrip
was issued throughout the nation and five states closed their banks
and declared a moratorium on financial obligations. 18

In the midst of the crisis, with the federal government doing every
thing the New York bankers could ask of it, Morgan coolly picked up
Tennessee Coal and Iron. During November, by Presidential order,
the Treasury issued $150,000,000 in assorted certificates and bonds at
low interest rates, and allowed banks to issue currency on the bonds
as collateral. The creation of emergency currency in Chicago also
helped, and although the reverberations of the panic led to a substan-
tial industrial, depression throughout most of 1908, the immediate
crisis was overcome. But the big bankers were thoroughly chastened,
and serious financial reform could no longer be delayed.

Smaller merchants as well as the New York bankers now realized
the urgent need for reform. During November and December, 1907,
numerous generalized resolutions calling for a more flexible currency
arrived in Congress from various merchants and business groups.
Roosevelt, in his Annual Message to Congress in December, again in
vague terms invited Congress to make the currency more elastic, but
it w as evident that he was loath to become involved in the complicated
problems of banking, much less to provide leadership in the matter.

There was no shortage of proposals to suit every political and
banking faction. In early January, 1908, two bills were introduced in
Congress. The Fowler Bill, a departure from Fowler’s earlier, banker-
drafted bill of 1906, eschewed any type of central bank, although if
provided for a joint guaranty fund and concentrated heavily on allow-
ing banks to issue notes for loans on commercial paper so long as
their reserves were primarily in gold. Senator Aldrich also submitted
a bill designed to allow the creation of emergency currency backed by
state, municipal, and railroad bonds. The currency commission of
the American Bankers Association, however, met in mid-January and
condemned both the Fowler and Aldrich Bills, and presented its own
measure, written by J. Laurence Laughlin and similar to the earlier
Fowler Bill. Further, merchant and banking interests immediately op-
posed the Aldrich Bill, which was regarded as a conservative effort to
shore up the value of railroad bonds. Various clearing houses, the
New York Board of Trade, the Merchants’ Association of New York,
and other important banking and merchant groups attacked the Aid-
rich Bill, while organizations such as the N.A.M. called for currency

157

secured by commercial assets without endorsing any specific bill. The
Wall Street bankers were divided on both the Fowler and Aldrich
measures and neutralized one another, although George F. Baker and
Perkins supported the Aldrich Bill. The two most important leaders of
Chicago banking, James B. Forgan and George M. Reynolds (also
president of the A.B.A.), led the fight against both bills, and Forgan
convinced Roosevelt to oppose the guaranty of bank deposits. 19

Roosevelt probably enjoyed the spectacle of the big bankers fight-
ing one another, and although he opposed the Fowler Bill as infla-
tionary, he admitted “This financial business is very puzzling.” Banker
divisions provided him with a convenient excuse for inactivity. “The
trouble is that, the minute I try to get action,” Roosevelt wrote Henry
Lee Higginson, an opponent of the Aldrich Bill, “all the financiers and
businessmen differ so that nobody can advise me . , . and only Senator
Aldrich has prepared a bill.” 20 Still, Roosevelt was really partial to
Aldrich’s measure.

With the banking community so deeply divided over its specific
objectives it is not surprising that a vague compromise had to be ar-
ranged. George Perkins saw Aldrich in March and convinced him to
remove railroad bonds as collateral for emergency currency, since this
feature of his bill patendy favored the large Eastern banks and was a
major source of opposition. Morgan had suggested a simpler bill that
was capable of being passed, and he and Perkins were hardly sur-
prised or displeased when the Aldrich Bill was later sharply watered
down by Congress. Tn late March the Aldrich Bill passed the Senate.

Hearings on the Aldrich Bill were held by the House Committee
on Banking and Currency, of which Rep. Fowler was chairman, dur-
ing April. With the exception of representatives of the Standard Oil
and Morgan banks of New York, virtually every major banking and
commercial group testified or let its views be known. Former president
of the A.B.A. John Hamilton was nearly correct when he stated “the
sentiment is universally against the Aldrich bill.” 21 Among others, the
Chicago, Minneapolis, Philadelphia, and even the New York clearing
houses testified against the Aldrich Bill Despite this overwhelming
opposition, everyone wanted regulation of some sort to prcvcnl I In-
recurrence of a terrifying panic similar to that of 1907. The Aldrich,
Fowler, and A.B.A. forces had effectively neutralized one another,
and the result was a compromise bill presented by Rep. Edward B
Vreeland for the Republican caucus in the House, which became law

158

FAILURE OF FINANCE CAPITALISM

in May. The Act allowed government bonds and commercial paper to
be used as collateral for an emergency currency issued by cooperative
national banks of ten or more meeting certain capital and surplus re-
quirements, but since the various conditions were so involved that the
Act was never utilized until 1914, the most significant aspect of the
measure was the authorization of a joint Congressional National Mon-
etary Commission to study the entire financial and banking system
and deliver a report. Roosevelt was relieved, and notified Taft that the
entire problem of banking, on which “I am not sure of my ground,”
would now rest with the Commission. 22 The solution to the problem
of the banking and financial structure, even the banking community
agreed after its prolonged internecine dispute, would have to be left
with the politicians. But the bankers had brought the problem to the
politicians’ attention, and in the process of doing so they made bank-
ing reform an issue to be ultimately defined and solved on bankers’
terms.

CHAPTER SEVEN □□□□□□□

THE
ORDEAL OF
WILLIAM HOWARD TAFT,

1909-191 1

The Legacy
of Reform

William Howard Taft inherited an ambiguous legacy from the
Administration of Theodore Roosevelt. And, given the deeper ambi-
guities in the very nature of progressivism, as well as in the new Presi-
dent’s own values, his leadership was to be marred by innumerable
contradictions and seeming inconsistencies. Had his wife been less
ambitious, the new President would have preferred a quiet, predictable
chief justiceship on the Supreme Court. But at the beginning of I WO
Taft was still the anointed successor to Roosevelt, elected with the
support of big business during the furious campaign against William
Jennings Bryan, and as yet untried in the uncharted seas of national
politics.

159

160

THE ORDEAL OF W . H. TAFT

Taft, of course, had campaigned on the record of Roosevelt, and
endorsed the record as he understood it. Roosevelt’s legacy is clear to
the modem historian, but it was less so to the contemporary observer
as well as to Taft. Roosevelt was known as the “trustbuster” despite
the fact that he busted very few trusts. Many disliked his tone, and
confused his critical verbiage in regard to the Harrimans and Rocke-
fellers with a genuine enthusiasm for reform. Roosevelt had embarked
on a campaign to save business both from its own folly and from the
dangers the unthinking masses posed in a formal political democracy
potentially capable of really operating as a democracy. Despite the
rhetoric of serving as the President for the entire nation, Roosevelt felt
naturally comfortable only in the company of Knox, Ix>dge, Aldrich,
Root and other members of the Eastern social and business elite. He
considered himself, quite appropriately, a conservative trying to avoid
revolutionary chaos by bringing the industrial structure under rea
sonable control. He repeatedly accepted the inevitability of corporate
concentration as the basis for any measure of control. By a series of
detentes and administrative decisions, and by ignoring the vague Sher-
man Act, Roosevelt was able to create a rather arbitrary political capi-
talism dependent more on his personal whims than on any formally
rationalized system. In virtually every area in which he acted, how
ever, he responded to initiatives shown by others in formulating basic
proposals. His major legislative measures reflected the desires and
pressures of specific interests, and his detentes with corporations were
invariably the result of their initiatives.

Reform journalism during the Roosevelt era — which the President
rather cruelly dubbed “muckraking” — -offered Taft little guidance to
compensate for the quite arbitrary nature of Roosevelt’s actions. It it
significant that out of the entire muckraking literature, which was ia
effect a refutation of the existing theories on the character of the capi-
talist economy and state as well as a partial description of the opera-
tional nature of American institutions, no serious social or economic
theory was formulated. In part this was due to the puerile character of
many of the muckrakers, and their obscuring of many of the realities
of the day by ascribing opposition to government control where there
actually was none. More than anyone else, they should have been
aware that there is no necessary incompatibility between capitalism
and the government, since the burden of much of their writings was
the control of government, at least on a local and state level, by busi-

161

ness. But all too many of the prominent muckrakers were journalists
rather than thinkers, with commonplace talents and middle-class val-
ues, incapable of serious or radical critiques. A few, at least, were
Opportunists. Ray Stannard Baker was celebrating U.S. Steel in 1901
for its “republican form of government, not unlike that of the United
States. . . By 1903 he was writing about the dangers of the union
Closed shop. Ida Tarbell eventually took up the cause of Elbert H.
Gary. Even the more consistent of the muckrakers, such as David
Graham Phillips and Charles Edward Russell, regarded Roosevelt as
In innocent in the entire process of political treason or regarded the
dimple elimination of rebating as a crucial step toward ending the
“trust problem.” The muckrakers, for the most part, thought capi-
talism could be reformed by replacing evil men with good citizens,
ind in this respect they very much agreed with Roosevelt. 1

Roosevelt frequently referred to “mob rule” as a danger, and to
the need for the federal government to protect the honest businessman
from the wrath of the masses. In voicing anxieties over the potential
power of the masses to uproot the rights of business, Roosevelt merely
expressed a common denominator among most patrician “reformers”
(luring this era. Indeed, many of the major reformers and “enlight-
ened businessmen” at the turn of the century were primarily concerned
With avoiding radical attacks. “. . . all popular forms of government
, . . [will] be attended by the growth and development of communistic
ideas,” Marshall M. Kirkman, a railroad executive, had warned in
1885. By separating business from the masses through the creation of
commissions, however, “the result has been in a measure to prevent
misunderstanding and allay irritation on the part of the people.” 2 Dur-
ing the 1890’s the Interstate Commerce Commission served as pre-
cisely such a bulwark against the attacks of state legislatures on rail-
roads, and the I.C.C. experience suggested that the federal govern-
ment had a potentially important buffer role to play in a political
democracy.

Big businessmen feared democracy, especially on the local and
Mate levels where the masses might truly exercise their will, and they
luccessfully turned to the federal government for protection. This fear
Was articulated, often quite frankly.

In 1901, the Bankers’ Magazine, a perfectly conservative journal,
(peculated on the future and desirable political development of the
nation.

162

THE ORDEAL OF W. H. TAFT

The growth of corporations and of combinations tends to strengthen
the forces which seek to control the machinery of the government and Un-
laws in behalf of special interests, . . .

Theoretically, the ballot controls everything; but the spirit of political
organization which has grown up outside of legislative enactment now
goes far to control the ballot. Industrial and commercial organization,
when it desires to control the government, either Federal or State, finds
a political organization ready for its uses. The productive forces are tin-
purse-bearers. They furnish the means by which alone governments can
be made effective. They also furnish the means by which the political
organization which produces the government is created and becomes
effective. The business man, whether alone or in combination with other
business men, seeks to shape politics and government in a way condusive
to his own prosperity. . . . More and more the legislatures and the execu
tive powers of the Government are compelled to listen to the demands
of organized business interests. That they are not entirely controlled hv
these interests is due to the fact that business organization has not reached
full perfection. The recent consolidation of the iron and steel industries
is an indication of the concentration of power that is possible. . . .

Every professional man as well as all who pursue every other mode
of livelihood will be affiliated by the strongest ties to one or the othei
of the consolidated industries. Every legislator and every executive officer
will belong to the same head. Forms of government may not be changed,
but they will be employed under the direction of the real rulers. Of course
it is easy to see that individual independence, as now understood, is
different from what it would be under such a novel state of things, bm
no doubt it would still be individual independence. Probably under a
government directed by a great combination of industrial and productive
powers, the degree of individual independence which each citizen sacri-
fices for the good of the whole would be no greater and perhaps not so
great as the independence which each citizen now sacrifices in obedience
to existing law and custom. The direction of the industrial and producing
forces would enlarge independence in some directions while it mighi
restrict it in others. Wisely conducted, every citizen might, according to
his merit and ability, attain higher prizes in life than is possible at the
present time . 3

Nor did the values reflected in the Bankers’ Magazine represent
an isolated phenomenon, even if these values were never expressed
quite as systematically. Roosevelt’s view of the dangerous, potentially
irresponsible character of the masses, and the need to channelize them
along controllable lines, was expressed by many others as well. “. . . the
day has gone by,” Charles S. Mellen of the New Haven Railroad told
the Hartford Board of Trade in 1904, “when a corporation can be

163

handled successfully in defiance of the public will, even though that
will he unreasonable and wrong. A public must be led, but not driven,
Miul 1 prefer to go with it and shape or modify, in a measure, its opin-
ion, rather than be swept from my bearings with loss to my self and
Itlc interests in my charge.” Reiterating the theme of an irrevocable
tension between the masses and “good government,” William Dudley
Pun Ike, a leading civil service reformer in this period, indicated that
popular government and parties were the source of spoils, and that the
Mini of civil service reform, which Roosevelt so notably advanced, was
to mitigate this evil of democracy. 4

Increased state regulation of railroads, state suits against major
Corporations, and state efforts to implement economic and social wel-
fare laws of every type, only illustrated the value of comprehensive
federal regulation that was more responsive to big business than the
majority of individual states might be. The Hamiltonian conception of
Ihc role of the national government as predominant, which was so
Central to the New Nationalism of Roosevelt, was motivated by the
lunic fear of state and local initiatives that could express the genuine
desires of the masses. When the detente between the Bureau of Corpo-
rations and International Harvester was created, Elbert H. Gary was
explicit in suggesting that one of the advantages of the arrangement
Was to prevent violent state attacks on Harvester such as were then
Inking place in the Midwest. Gary consistently feared the masses, and
for this reason hoped for a general institutionalization of the detente
lystcm into a formal political capitalism. “I think one of the great
tllmurbers and objections to the conditions and proceedings of this
Country,” he remarked to a Senate inquiry in late 1911, “is the fre-
quent elections.” A possible solution, he suggested, was the election of
Mil “absolutely independent” President for a term of eight years. 5 Al-
bert Stickney, a Harvard-trained New York attorney, suggested a few
years earlier that periodic elections resulted in business instability and
lost time. The solution was to merge both houses of Congress, abolish
term limitations for Congressmen and the President, and have elec-
tions only at times of vacancies or upon removal of the President by a
iwo-thirds vote of the Congress. “Mass rule is mob rule,” he frankly
Itutcd. Representative government, according to Willard A. Smith,
editor of the Railway Review, led to the victory of “the loudest
mouthed.” 6 It could be saved only if the businessmen took over.

The discontent of the masses, Francis Lynde Stetson remarked in

164

THE ORDEAL OF W . H. T A !•

1917, “is to be allayed not by a policy of stem and unbending tory
ism,” but by flexibility, 7 His advice had been followed by the big
businessmen in the National Civil Federation, Brandeis, and otln-i
progressive capitalists, who acknowledged, along with Roosevelt, Un-
right of trade unions to be organized in genuine open shops. Howevi i
different their functional actions, which were antiunion, the Gary :,
Perkinses, Carnegies, and pro-regulation capitalists knew that laboi
would demand a place in the sun as well. The choice, they well real
ized, was between a lackadaisical A.F. of L. that accepted the idc<>
logical premises of the status quo and a radical industrial union
movement led by a Eugene Debs or a William Haywood.

Taft the
Trustbuster

Taft entered office in 1909 with the legacy of Roosevelt’s progres
sivism: its informality, its conservatism, its loosely defined precedents.
The Republican platform of 1908 ostensibly committed him to tin-
amendment of a basically wholesome vSherman Act in such a way a.-;
to allow greater federal “supervision and control over” interstate co;
porations. And the new President was undoubtedly still sensitive to
Bryan’s allegation that the Republican Party had an alliance with big
business. Taft also entered office with a number of political debts.

Taft’s first debt was to Theodore Roosevelt, the man almost wholly
responsible for his political fame and fortune. On Roosevelt’s advice,
the new President decided to work with House Speaker Cannon — as
Roosevelt had always done — and the regular Republican Party lead
ers. Roosevelt was pleased with Taft’s major appointees, and Taft was
solicitous of his every wish during 1909. largely on the basis of
Roosevelt’s record, the Taft campaign received $150,000 from tlu-
House of Morgan during the close campaign of 1908, and the dona
tion was given with the anticipation that the detente system would be
perpetuated by the new Administration. Perhaps more significantly,
Perkins, Gary', and other Morgan aides had arranged for the projected
railroad rate advance during the summer of 1908 to be postponed,
realizing any increase could cost Taft votes. Immediately after his
nomination, Taft assured Nelson Aldrich, the party's leading conserv-

165

stive, that he would rely on him for advice. Business expected just as
fliir a hearing from Taft as they had received from his predecessor,
perhaps even a better one, and this expectation seemed about to be
realized. Commenting to Morgan on a confidential outline of Taft’s
inaugural address, Perkins thought it “in all respects conciliatory and
harmonizing in its tone.” 8

But despite these auguries for a continuation of Roosevelt’s basic
policies, Taft was literal minded, molded by politics, and ultimately
an enigma. So far as antitrust affairs were concerned, he never fol-
lowed any policy consistently, despite the fact that he was eventually
to destroy the detente system and initiate many more antitrust suits
than had Roosevelt. Historians have regarded Taft as a President with
an uneven record. He favored the income tax, but only if it were
llipported by an amendment to the Constitution. In 1909, however,
George Perkins supported the principle of an income tax, and even
Aldrich and Root endorsed a corporation tax as an alternative to the
Income tax. The differences between Taft and the Midwestern Insur-
gents in the Senate and House were quantitative rather than qualita-
tive and there was a striking similarity on railroad matters. Taft was
to rely on Aldrich rather than on the Insurgents in the Senate, but in
doing so he merely followed Roosevelt’s precedent, and in antitrust
matters he acted quite independently of Congress. 9

There can be no doubt that Taft was not a great conservationist —
but neither were Roosevelt nor Gifford Pinchot for that matter. Taft
was politically inept and, for better or worse, his Cabinet members
Were of some consequence in shaping Taft’s more critical viewpoint
toward the House of Morgan. The Attorney General, George W.
Wickersham, while similar to Bonaparte in his general views on trust
matters, was much more influential than Bonaparte had been with
Roosevelt. Herbert Knox Smith, still head of the Bureau of Corpora-
tions, was committed to the detente system, but his new superior,
.Secretary of Commerce Charles Nagel, extended more control over
the bureau than had his predecessors. There was no one similar to
Jmncs R. Garfield close to Taft, and the President, with his long judi-
cial experience, was used to thinking in terms of formal laws rather
than informal understandings.

Publicly, at least, Taft’s views on the regulation of big business
Were not substantially different from those publicly expressed by
Roosevelt. By the end of 1909 Taft was unwilling to press seriously

166

THE ORDEAL OF W. H. TAM

for a revision of the Sherman Act, or, for that matter, for any new
laws pertaining to corporations. He wished to wait for the Supreme
Court’s decisions on the American Tobacco and Standard Oil cases,
and, more important, he was unwilling to grant those concessions i<>
trade unions which he knew would have to be a part of any new law
Still, politics has its own imperatives, and Taft knew that he musi
recommend trust legislation to Congress in his Special Message on
January 7, 1910. That he was not seriously interested in obtaining ii
is quite another matter.

Taft’s Message tried to make “as emphatic as possible” a distine
tion between giant corporations that had attained great economy in
production and those trusts, irrespective of their efficiency, designed
to stifle competition. But wholesale investigations and prosecutions of
giant corporations would “tend to disturb the confidence of the busi
ness community,” injuring “the innocent many for the faults of the
guilty few.” Since it was impossible to enact an amendment to the
Sherman Act that would allow the courts to distinguish between
“good” and “bad” trusts in a rational manner, Taft instead asked for
a federal incorporation law that would allow the national government
to pass on corporate practices, proposed mergers, and capitalization.
Such a law would apply only to those corporations ready to come
voluntarily under its jurisdiction, and would not “prevent reasonable
concentration of capital. . . .” 10 Taft had taken a stand, not unlike
Roosevelt’s, which was certainly popular with big business insofar as
it stressed federal incorporation, but it also allowed him full freedom
to engage in antitrust prosecutions.

George Wickersham’s position on antitrust matters was virtually
identical to Taft’s — that is, it was capable of very broad interpreta-
tion. There was an “economic necessity” to many large combinations,
but unnecessary economic centralization was to be avoided when pos-
sible. Wickersham hoped, in early 1911, that the Supreme Court, in
its forthcoming decisions on the Tobacco and Standard Oil cases,
would clarify the Sherman Act for businessmen once and for all. But
when it failed to do so, he essentially continued to maintain Taft’s
view of January, 1910, concentrating on federal incorporation as a
solution. Herbert Knox Smith, with greater emphasis on the need for
federal incorporation, continued to maintain the same view — and re-
ceived much sympathetic encouragement from Gary and Cyrus H.
McCormick, the two major beneficiaries of his detentes. 11

167

The crucial distinction between Taft and Roosevelt, however, is
not an ideological one. Taft, unlike Roosevelt, believed that the Sher-
man Act still existed and had some value, and he did not appreciate
the possibilities for accommodation offered by private detentes. Be-
ginning in 1910, Wickersham was to initiate a large number of cases
under the Sherman Act — for a total of sixty-five during the four years
of the Taft Administration as opposed to a total of forty-four under
Roosevelt. More important, Taft was to bring to a conclusion the few
major cases initiated during Roosevelt’s Administration. Despite this
seeming activity, as we shall see, Taft never had a consistent, coherent
attitude toward the antitrust question.

In the Standard Oil antitrust suit initiated under the Roosevelt
Administration, a Circuit Court decision ordering the industrial titan
to divest itself of its subsidiaries was handed down in November,
1909. The case was immediately appealed to the Supreme Court, and
in May, 191 1, the Supreme Court handed down an order for Standard
Oil of New Jersey to divest itself of its holdings in thirty-seven other
companies, the distribution of ownership in each company to be ac-
cording to the distribution of stock in Standard of New Jersey at the
time of the dissolution. Included in the legal opinion of the Court was
the altogether mercurial “rule of reason” specifying that only “unrea-
sonable” combinations in restraint of trade were illegal under the
Sherman Act, thereby greatly complicating the meaning of the law to
big business.

There is no indication that Wickersham participated in the formu-
lation of the Standard dissolution plan, but the scheme was eminently
designed to fail. An immediate byproduct of the decision was the
sharp increase in the value of Standard stock. Standard of New Jersey
was left as the second largest corporation in the United States and
retained 43 per cent of the net value of the pre-dissolution stock. The
component companies remained near monopolies in their respective
territories and did not compete with one another. The competition
that eventually returned to the industry was due to factors, discussed in
Chapter Two, that had nothing to do with the Court’s decision. Over
the next fifteen years the Standard empire was largely reintegrated.

Despite the eventual harmlessness of much of Taft’s antitrust ac-
tivities, he still managed to alienate considerable big business elements
by his efforts. From the beginning of 1910, after Taft lost Insurgent
support because of his alliance with the Eastern conservatives on the

168

THE ORDEAL OF W . H. TAI I

Payne-Aldrich Tariff, the Mann-Elkins Bill, and similar measures, sej>
ments of big business began turning on Taft because of his rather lit
eral dedication to antitrust activities. Herbert Knox Smith and In .
Bureau of Corporations were left hanging in lim bo as Wickersham
ignored him in his trust prosecutions. And since the House of Morgan
had the most to lose from such changes, throughout 1910 the tension
between the Morgan interests and Taft increased. In June, 1910, when
Wickersham slapped an injunction on major railroad freight increases,
George Perkins began fearing the worst from the once obliging Tafi
After receiving a critical attack from his old friend, Francis Lyntle
Stetson, Wickersham rather plaintively wrote him that “Surely we
may differ on economic questions without abating in any degree a
friendship of many years. . . .” In July, 1910, after Wickersham or
dered a grand jury inquiry into the National Packing Company — later
dissolved in 1912 — lawyers for the joint firm of Swift, Armour, and
Morris desperately tried to arrange an out-of-court settlement with the
adamant President and Attorney General. 12

From mid-1910 on a key factor in shaping Taft’s antitrust policy
was Roosevelt’s increasing hostility toward his protege. Throughout
1910 the tension between the two men increased as Taft split the Re
publican Party apart on reform issues while playing the role of tK
erstwhile radical in the very area that Roosevelt believed in conserva-
tism. In the early months of 1911 the political relations between the
two men again became friendly, even cordial, notwithstanding the
open opposition to Taft from Midwest Insurgents and a growing
number of businessmen. 13

The President was never able to establish that crucial rapport with
all too many potential business friends. Some who had tolerated or
rationalized his actions in 1910 were basically unhappy. Businessmen
pleaded with Taft to restore business confidence by withholding fur-
ther antitrust actions and having the Department of Justice pass on
the legality of proposed business transactions; Wickersham and Taft
merely tried their best to reassure businessmen that the Sherman Act
was, in fact, explicit and that business really knew what the law was.

Taft and Wickersham, in mid-1911, took steps to halt the growing
business disenchantment with the Administration. The American To-
bacco antitrust suit had been in the courts since 1907, and in May,
1911, the Supreme Court ordered the Circuit Court, in conjunction
with the Department of Justice, to work out a dissolution plan satis-

169

factory to all concerned. The Circuit Court called in the attorneys for
the Tobacco Company and for the government and asked them to
submit a mutually acceptable plan. Wickersham failed to formulate a
detailed proposal, and rejected out of hand a receivership scheme
advanced by one of his key attorneys, James C. McReynolds. Mc-
Reynolds, an ardent believer in laissez faire who was later to attain
fame as a conservative member of Wilson’s Cabinet and then in the
Supreme Court, quit in a huff after Taft told Wickersham “I would
not hesitate to run right over him.” 14 American Tobacco’s attorneys
then proceeded to submit a plan very much like the one proposed by
Thomas Fortune Ryan to Elihu Root in early 1907. The proposal was
immediately challenged in public hearings by tobacco dealers, tobacco
growers, and the attorneys general for a number of the Southern
states. Perplexed, and aware of the fact that the Bureau of Corpora-
tions was preparing a study of the tobacco industry, Wickersham
called in the bureau’s leading expert, Dr. A. C. Muhse, for his opin-
ion of the dissolution proposal. Muhse was very frank: the American
Tobacco plan was merely a scheme to preserve monopolistic condi-
tions in the industry. Three giant firms would remain, each with a
monopoly in its type of product and two of them loaded with the old
debt of American Tobacco, while the original company was to receive
a very high return on its investment. “The proposed method of dis-
tribution . . . ,” Muhse warned, “leaves very much to be desired if
truly competitive conditions are to be reestablished.”

Muhse’s insights, however, merely confirmed the value of the To-
bacco plan in the minds of Wickersham and Luther Conant, Jr. of the
Bureau of Corporations, and Conant freely admitted that American
Tobacco would soon control the industry once more. Amidst the pro-
tests of tobacco growers and dealers, Wickersham informed Taft he
would “accept the principles and most of the details of the plan sug-
gested by the tobacco company.” The protests were dismissed by
Wickersham with the assertion that he “relied on the report of Dr.
Muhse as corroborating the statements made by the Tobacco Com-
pany.” 15 Even if Wickersham was not deceiving the President, it is
certain that he tried to deceive the public. The following month, alter
the plan was accepted by the Circuit Court, Wickersham announced
that the Tobacco monopoly had been destroyed by breaking it up into
fourteen competitive units. Muhse’s predictions were immediately real-
ized, as the three giants created by the dissolution increased their

170

THE ORDEAL OF W . H. TAFT

share of the cigarette market from 80 per cent as one firm in 1909 to
91 per cent in 1913.

U.S. Steel and
Roosevelt

While Wickersham was fishing in troubled water, damaging the
reputation of the Taft Administration among trustbusters and trust-
builders alike, the Democrats in the House initiated an investigation
of U.S. Steel that was to mesh with other events to bring the nascent
split between Taft and Roosevelt to a head. Taft was no more re-
sponsible for the inquiry that began in May, 1911, than was Roose-
velt for an earlier Senate inquiry during the first months of 1909.
But the new investigation by the Stanley Committee was to involve
Roosevelt in one of his politically tender spots, the acquisition of
Tennessee Coal and Iron by U.S. Steel.

Although there were vicissitudes in the relationship between Taft
and Roosevelt during 1910 and the first nine months of 1911, it was
apparent to many of Taft’s allies that a conflict was inevitable. As
early as September, 1910, Louis Howland, an Indianapolis news-
paper man, had suggested that Roosevelt’s reputation as an erstwhile
reformer would be especially susceptible on the questions of Ten-
nessee Coal and Iron and campaign donations, should Taft find it
necessary to fight. Wickersham was relayed the message by Taft’s
secretary — it is not certain the President knew of it — but the Attor-
ney General realized that such discussions would “be an open decla-
ration of war” on Roosevelt. 18

The House inquiry posed a simple bureaucratic problem and a
larger question as to what was to remain of the detente with U.S.
Steel. The Bureau of Corporations, after all, had been collecting data
on United States Steel for years, and Smith was concerned about the
problem of winning credit for any investigation of U.S. Steel for his
bureau. Its first report, finally issued July 1, 1911, was a useful
collection of fairly accessible data on the decline in the market posi-
tion of the giant — a report hardly designed to offend U.S. Steel’s
officers. Irritated, the Stanley Committee entered the report in its
records as an “exhibit” rather than as “evidence.”

171

In July Herbert Knox Smith was brought in front of the Stanley
Committee and asked to produce all the material on U.S. Steel in
his possession — undoubtedly a deliberate Democratic effort to em-
barrass the President. Smith demurred on the grounds that the data
had been given voluntarily and might aid U.S. Steel’s competitors,
and that only the President was able to release it. The tension be-
tween the Congressmen and Smith was poorly concealed. Smith’s
policy was simply to respect the confidence U.S. Steel had placed in
him, and in this he had the support of Secretary of Commerce Nagel.
One o: his chief aides, William H. Baldwin, was unceremoniously
fired b} Smith when he complained that not enough data were being
released. In August, it was agreed by Nagel, with Taft’s apparent
approval, that information received in confidence would not be given
to the Stanley Committee. At the same time, Taft wrote Roosevelt
that he should refuse to appear before the committee — advice he
ignored.

By the end of August Wickersham thought it time to begin re-
sponding more aggressively to the political attacks of Roosevelt’s
friends in the Republican Party. After all, Roosevelt could have been
thrown to the wolves so far as his progressive reputation was con-
cerned, especially after defending his whole course of action in the
Tennessee affair — and Taft was protecting him.

The temptation was too much, especially in light of the fact that
U.S. Steel continued to drag its feet on the seemingly interminable
bureau investigation. Since he was aware of the implications in Oc-
tober, 1910, there is little doubt that Wickersham knew he was
declaring political war against Roosevelt when he initiated an anti-
trust suit against U.S. Steel one year later on October 26. That the
Tennessee acquisition was a key point in the complaint made it cer-
tain that the suit was really against Roosevelt. Roosevelt, quite pre-
dictably, accepted the challenge and broke off relations with Taft.
It marked the end of a long friendship. But Roosevelt’s public de-
fense, which followed several weeks later in The Outlook, was not
merely a defense of the detente system with U.S. Steel, but of its
acquisition of Tennessee Coal and Iron as well. 17 To the hitler end,
despite the obvious political liabilities of his posidon, Roosevelt was
unable to challenge the personal integrity or motives of his Morgan
friends.

On October 27, Luther Conant of the Bureau of Corporations

172

THE ORDEAL OF W. H. TAFT

was ushered into Judge Gary’s office and told that U.S, Steel would
furnish no more information to the bureau, save on advice of coun-
sel. The bureau decided not to utilize its power of subpoena. During
November, and with Taft’s support, members of the Attorney Gen-
eral’s office requested all information on U.S. Steel in the possession
of the bureau. The Steel people hurried to Secretary Nagel and were
able to prevent the release of the data until January, 1912, when a
mutually satisfactory plan for the release of the data was agreed
upon. A second bureau report on U.S. Steel was then rushed into
print on January 22, 1912.

Smith was now left in an untenable position as head of the bu
reau, especially since the bureau’s traditional functions were now
unacceptable to his nominal superiors. In July, 1912, Smith resigned,
ostensibly on the grounds of disagreement with the general Taft, anti
trust policy, and joined the Progressive Party. Taft, hoping to avoid
unfavorable publicity, urged Nagel to allow the matter to pass quietly.
By using data collected by the bureau, and exploiting the appeal that
the company had acted “on the apparent approval of the Govern-
ment and the public,” U.S. Steel was, ironically, later deemed inno-
cent under the antitrust law. 18

Business and
Regulation

By 1912 the antitrust policy of the Taft Administration was in
a shambles, in large part due to the desire of the Administration to
defend itself against Roosevelt’s partisans, Taft’s position on the na-
ture of the modem corporation, and even on remedial legislation, was
decidedly Rooseveltian. But his wild and inconsistent antitrust cases
had upset the corporate climate. Under Roosevelt it had been pos-
sible to attain a significant measure of stability, at least for the Mor-
gan interests, without legislation. Taft, however, vividly illustrated
the need for a more formal, predictable, and permanent basis for the
relationship of the large corporation to the national government.

As it became evident that Taft would pursue antitrust activities
far more seriously than was desired, businessmen turned to the dis-
cussion of legislative alternatives. Indeed, the President himself

173

I

pointed to some of these alternatives. He had explicitly endorsed fed -
eral incorporation in early 1910, and Wickersham and Herbert Knox
Smith had repeatedly referred to it as a solution to the “trust
problem.”

In addition to federal incorporation or licensing, however, more
far-reaching proposals were to be made by important businessmen.
The problem of the inequitable distribution of wealth, Andrew
Carnegie announced in 1908, could be solved by the rich regarding
their money “to be administered as a sacred trust for the good of
others. . . So far as the price competition plaguing the steel indus-
try was concerned, however, “it always comes back to me that Gov-
ernment control, and that alone, will properly solve the problem,”
ostensibly also solving the problem of “monopolistic industrial con-
ditions.” “There is nothing alarming in this; capital is perfectly safe
in the gas company, although it is under court control. So will all
capital be, although under Government control. . . . What is reason-
able and proper will be for the court to determine.” “There is nothing
so absolutely impossible as uncertainty,” George Perkins freely con-
fessed in 1909 in reference to state regulation. 19

Shortly after his January, 1910, speech endorsing federal incor-
poration, Taft asked Wickersham to prepare an implementing bill
for Congress, where it was duly introduced in February as the Clark-
Parker Bill. Seth Low and Perkins indicated their support for such
a bill, but the matter was dropped by the Administration. The issue
remained dormant until the end of 1910, when rumors began circu-
lating around New York financial circles that Stetson had prepared
a federal incorporation law at Morgan’s request to be submitted to
Taft — and that Taft was disinterested. Stetson denied the rumor,
but Taft’s simple renewal, in his second Message to Congress, of his
earlier request for such a law certainly indicated that the President
was not interested in obtaining it. “The Federal incorporation idea
was generally approved by leading corporate and financial interests
as a means of affording relief from oppressive State legislation and
nullifying the obnoxious features of the Sherman anti-trust law,” the
New York Financial America announced. 20 Such supervision, Perkins
told business audiences during late 1910 and early 1911, would tell
stockholders and the public that business is honestly and fairly man
aged. “But federal regulation is feasible, and if we unite and work
for it now we may be able to secure it; whereas, if we continue in our

174

THE ORDEAL OF W. H. TAFT

fight against it much longer, the incoming tide may sweep the ques-
tion along to either government ownership or socialism.” A “Busi-
ness Court” in Washington, made up of businessmen and for the
purpose of adjusting business problems, Perkins was suggesting in
January, 1911, would give industry the freedom to act. 21

Despite the growing businessmen’s hatred of Taft’s antitrust
actions, on questions of policy they were largely in agreement. The
President favored federal incorporation, as did Nagel and Wicker-
sham, as a possible solution to the entire antitrust problem. The real
block, so far as the attainment of legislation was concerned, was in
the House. The House Democrats, especially, were entirely without
alternatives to the business demand for federal incorporation or li-
censing. In June, 1911, appearing before the Stanley Committee,
Judge Elbert H. Gary announced to the astonished members that “I
believe we must come to enforced publicity and governmental con-
trol . . . even as to prices, and, so far as I am concerned ... I would
be very glad if we knew exactly where we stand, if we could be freed
from danger, trouble, and criticism by the public, and if we had some
place where we could go, to a responsible governmental authority,
and say to them, ‘Here are our facts and figures. . . . now you tell
us what we have the right to do and what prices we have the right
to charge.’ ” The reason Gary and Carnegie were offering the powers
of price control to the federal government was not known to the Con-
gressmen, who were quite unaware of the existing price anarchy in
steel. The proposals of Gary and Carnegie, the Democratic majority
on the committee reported, were really “semisocialistic,” and hardly
worth endorsing. 22

Until late October, 1911, and the initiation of the suit against
U.S. Steel, the outward unanimity between the Taft Administration
and big business on federal regulation continued. Wickersham was
still convinced of the “economic necessity” of big business, and
despite growing business anxieties and insecurity over antitrust prose-
cution, letters of support for Taft’s legislative proposals continued
to arrive from important businessmen. Perkins, however, was already
thinking beyond mere federal incorporation laws, as was the most
consistent advocate of federal incorporation since 1905, Francis G.
Newlands, Democratic Senator from Nevada. At the beginning of
1911 Perkins was proposing a federal business court or commission
to pass on the legality of business action, proposed and actual. Dur-

175

ing the spring of 1911 Senator Newlands mulled over a similar idea,
consulted with businessmen and Herbert Knox Smith about the mat-
ter, and obtained Perkins’ support. In July a bill to create an Inter-
state Trade Commission was submitted to the Senate, and hearings
that were to drag on until March, 1912, were begun in August. New-
lands’ bill was quite simple. The Bureau of Corporations was to be
turned into a commission, and all interstate corporations with re-
ceipts in excess of five million dollars were to furnish organizational
and financial data to the commission upon passage of the Act, and
upon request thereafter. The bill was admittedly tentative, and New-
lands indicated willingness to remove all serious penalty provisions
from the bill. His major purpose, he frankly confessed, was to permit
an official body to give its seal of approval to a corporation in order
that public opinion might be placated and the market value of its
shares maintained. 23 Although Herbert Knox Smith supported the
basic publicity function of the proposal, the rather vague bill never
became a serious political issue. Its real importance, other than sig-
nificantly publicizing the commission concept as a solution to the
antitrust issue for the first time, was in the forum it gave to business-
men in the course of its long hearings.

During the final two months of 1911, in conjunction with the
Newlands hearings and the U.S. Steel suit, the big business-supported
systematic legislative program emerged in coherent form. The first
indication came from Roosevelt himself, who in his attack on the
suit against U.S. Steel called for the formation of a national com-
mission with “complete power over the organization and capitaliza-
tion of all business concerns engaged in inter-State commerce,” and
possibly prices as well. 24 The proposal immediately won an enthusi-
astic response from Wall Street, and strongly raised Roosevelt’s po-
litical stock. In late November Perkins visited Taft and presented him
with a set of proposals, urging him to make the antitrust question his
first order of business. The Sherman Act, Morgan’s friend urged,
should be revised to make guilt individual rather than corporate, with
a greater stress on imprisonment than fines. A “court or commission”
made up of businessmen, he further proposed, should be created
under the Bureau of Corporations to gather voluntary information
on corporate procedures and to approve certain corporate actions.
Publicity and official endorsement of plans would be the keynote,
with increasingly stringent rules being added with the passage of time.

176

THE ORDEAL OF W . H. TAF I

And, Perkins stressed, until a Congressional investigation of the
entire trust matter could be undertaken, prosecutions “of a nature
disturbing to business” should be suspended . 25

Several days after Perkins’ audience with Taft, Gary appeared
before the Newlands Committee with an even more elaborate plan.
Big business, he reiterated, was inevitable and desirable.

The only regulation adequate in scope and power to deal with these aggre-
gations of capital is regulation by the Federal Government, because the
subject matter of the regulation is largely interstate commerce with which
the states may not interfere, and the size and extent of the organizations
involved is such as to require uniform and national regulation.

Every interstate corporation, he urged, should obtain a federal li-
cense if it met strict publicity, capitalization, and price requirements.
A corporation co mm ission similar to the Interstate Commerce Com-
mission would be created to grant, suspend, and revoke licenses,
subject to court appeal. It also could decide on the legality of matters
submitted to it by businessmen and, in line with Carnegie’s proposal,
it could regulate prices. Such a system would prevent the evils of
socialism, eliminate uncertainty, and give government “protection not
only to the man who wishes to increase his business lines but to con-
tinue in business. . . .” Trade association agreements and prices, Gary
suggested, should be enforced by a commission if the prices were
fair . 28

Seth Low, perhaps anticipating the legislative possibilities of
Newlands’ commission idea, early in November sent out a question-
naire to thirty thousand businessmen. He asked them, on the assump-
tion that “the concentration of capital [is] essential to the full and
efficient development of modern business,” to comment on the de-
sirability of a federal incorporation law, a federal licensing law, and
a trade co mmi ssion “with powers not unlike those now enjoyed by
the Interstate Com m erce Commission.” Armed with the preliminary
returns, Low appeared before the Newlands hearings at the end of
November and announced that American business favored an incor-
poration law by a majority of nearly four to one, a licensing law by
nearly two to one, and a commission by nearly three to one . 27 Thus
strengthened, the president of the National Civic Federation took his
predictable New Nationalist view of desirable government action,
aligning himself with Gary, Perkins, and Carnegie.

177

In mid-December Perkins appeared before the committee and
repeated the plan he had presented to Taft. He was followed by
Henry B. Joy, the auto manufacturer, who favored a commission
with price fixing powers. With tire exception of Victor Morawetz,
who favored a commission with powers to approve contracts and
combinations but not to fix prices or grant charters or licenses, an
impressive array of important business witnesses indicated that Low’s
statistics on business sentiment were very probably correct.

Ironically, Taft and Wickersham’s position was not unlike that
of Perkins. After all, Taft had told Wickersham that to injure those
who own the capital of the nation, no matter how guilty they were
of evil-doing, was to inflict an injury on the entire country as well.
By November Wickersham was convinced of the necessity of a trade
commission as an essential solution to the entire antitrust issue, al-
though he was not explicit as to what its precise powers should be.
Pressure on Taft to clarify his stand on the Sherman Act was exerted
by business, and in his 1911 Annual Message to Congress he discussed
the matter in greater detail than ever before. His basic premise was
that the Sherman Act should be amended rather than repealed. And
although he had paid little attention to the four federal incorporation
bills presented in Congress during 1911-1912, Taft renewed his ad-
vocacy of such a voluntary measure. Taft recommended clarification
of the law so that it would describe specific violations in detail, and
he also proposed a federal corporation commission to which business-
men could submit proposed schemes and which might aid the courts
with dissolution plans. 28 The differences between Taft and Wall
Street were hardly discernible.

Although politics was to intrude into the discussion of the anti-
trust issue throughout 1912, the legislative desires of most important
businessmen were constant irrespective of political conflicts. The
Newlands Committee, after hearing the representatives of big busi-
ness, heard representatives of the coal industry plead for revisions in
the Sherman Act that would allow price and output agreements to
end cutthroat competition, and drug store association representatives
call for fair trade laws to defend themselves against the chains. The
coal request was also tied to the creation of a commission to super
vise such agreements. Carnegie, appearing before the Stanley Com
mittee in January, 1912, reiterated his belief in a federal commission
with the power to fix maximum prices, and throughout the previous

178

THE ORDEAL OF W . H. TAFT

month had vainly tried to swing Perkins to his view on prices. The
publication of the National Civic Federation’s complete survey in
early 1912, with its sixteen thousand replies, certainly vindicated
Low’s earlier testimony before the Newlands hearings, although busi-
nessmen were reluctant to grant a trade commission price-fixing
powers also. Pressure to revise the Sherman Act to eliminate the
vague definitions introduced by the Standard Oil decision and the
insecurity created by Taft’s actions was universal among business-
men, whether they were eventually to side with Taft, Wilson, or
Roosevelt in the political struggles of 1912. Perkins, in the mean-
time, kept encouraging the preparation of acceptable bills to imple-
ment his goals. Senator Albert B. Cummins, erstwhile Insurgent,
submitted a preliminary trade commission bill to the Senate in Febru-
ary, 1912, and during March he and Perkins discussed the possibility
of another bill. 28

In proposing the federal regulation of business, advocates of the
new Hamiltonianism were quite aware of the advantages such regu-
lation would have in shielding them from a hostile public, as well as
in introducting stability and control in economic affairs. “The leading
companies should be, and I believe they are, prepared to accept the
appointment of trade commissions both in the States and in the Fed-
eral Union,” Francis Lynde Stetson announced in May, 1912. “No
better buffer could be devised for absorption or avoidance of the
shocks between the corporations and an impatient or critical public.”
There was “a world-wide movement of general dissatisfaction and of
social unrest,” Joseph T. Talbert, vice-president of the National City
Bank of New York, told a group of his associates in the spring of
1912. “It would seem, therefore, to be the duty of all who influence
public opinion, and have the power to lead and mould it, to seek not
so much to check the movement as to direct its course in such man-
ner that the blindly instinctive impulses of human nature may not
destroy the economical organizations of capital. . . .” The trade com-
mission idea appealed to Talbert, just as federal incorporation was
thought by others interested in the preservation of capitalism to be
the best solution to public hostility. A federal commission composed
of businessmen of “broad experience,” J. K. Gwynn of American
Tobacco suggested, would not only protect business from a critical
public, but it could bring some order to the industrial fabric to re-
place the “deceptive mirage” of unrestricted competition — unre-

179

stricted competition that was being rapidly displaced by “rational
co-operation.” 30

Pressure to increase federal regulation came from many sources.
Big business wished to have federal incorporation or a commission,
or both, to escape from burdensome state regulation, to stabilize con-
ditions within an industry, such as steel, where they had failed by
voluntary means, to create a buffer against a hostile public and op-
portunistic politicians, and to secure those conditions of stability and
predictability so vital to a rationalized capitalist economy. Small busi-
ness, such as drug and other retailers, coal producers, and the like,
sought the right to create and enforce price and output agreements —
to end the burden of competition. Several efforts to create a politi-
cally stabilized capitalism deserve a more detailed consideration.

The telephone industry was highly competitive during the greater
part of the Progressive Era, and highly unstable. The independents
utilized, wherever possible, local political contacts as leverage in
their fight against American Telephone and Telegraph. Seeing the
struggle as primarily a political one, A.T. & T. responded with an
intense public relations program and by relying on the federal gov-
ernment for whatever aid it could obtain. At the same time, it en-
gaged in an active merger and expansion policy.

State telephone regulation existed in ten states by 1909, but seven-
teen more were added during 1909-1911, and another fifteen during
1912-1917. Moreover, many city regulations existed. During 1909,
A.T. & T., seeing the trend, embarked on an active public relations
program. Public hostility, E. K. Hall, vice-president of A.T. & T.,
declared in 1909, is

not only a serious danger to the property of the business but it is in my
judgment the only serious danger confronting the company, because the
natural tendency of such hostility, founded as it is on misunderstanding,
prejudice, and distrust is, under slight incentive, to crystallize at any time
into adverse legislation. . . . 31

The I.C.C. experience showed that federal regulation could serve as
an extremely valuable buffer between the public and industry, and
A.T. & T. was pleased when the Mann-Elkins Act of 1910 placed
telephones under I.C.C. jurisdiction. Rate wars were to become a
thing of the past. On the other hand, the independent phone com-
panies also favored the telephone provision of the Mann-Elkins Act.

180

THE ORDEAL OF W . H . TAM

Theodore N. Vail, president of A.T. & T., freely admitted in
1911 that the company had very little difficulty with state regulatory
bodies and that any problems that did arise could be taken care ol
in the courts. One problem that was not easily worked out, howevci .
was A.T. & T.’s acquisition of Western Union in 1909 and of many
other companies as well. Wickersham, in January, 1913, made an
arrangement with A.T. & T. for it to divest itself of Western Union,
to give up its aggressive merger policy, and to connect with othei
independent companies for toll service. The company’s merger policy,
while moderately successful, nevertheless had failed to give A.T. & T.
genuine control of the industry. Moreover, a number of cities ex
pressed support for government ownership of telephones. In early
1913 at least twelve important city councils, including Cleveland,
Los Angeles, Minneapolis, and San Francisco, endorsed the princi
pie. A.T. & T. realized that its long-term objectives of political sta
bility and economic rationality could be attained only by federal
regulation, and its commitment to the cause was intensified. It pre.
ferred a commission with permanent members which would thus be
free from the influence of politics, and it was explicit in admitting
that, in a democracy, flexibility was necessary to prevent social up
heavals. In 1914 Vail announced:

We believe in and were the first to advocate state or government control
and regulation of public utilities. . . . that this control or regulation
should be by permanent quasi-judicial bodies, acting after thorough in-
vestigation and governed by the equities of each case; and that this con
trol or regulation beyond requiring the greatest efficiency and economy,
should not interfere with management or operation. ... in order that
waste and duplication of effort may be avoided and uniformity of pur-
pose and common control be enforced . . . there should be a centralized
general administration in close communication with and having general
authority over the whole on matters common to all or matters of general
policy . 82

Another important development that was ultimately to influence
the fruition of a political capitalism was the growth and articulation
of the trade association movement, centered primarily around Arthur
J. Eddy, a Chicago lawyer who had worked for Standard Oil at vari-
ous times. Eddy specialized in creating trade associations in com-
petitive industries — associations that included the division of markets
and price fixing. The technique was an old one, and probably Illegal

181

under the Addyston decision, but from 1911 on Eddy created asso-
ciations among bridge builders, cotton fabric finishers, and others,
stimulating a trend that in the 1920’s resulted in many hundreds of
such amalgams. In late 1911 Wickersham’s office considered the
problem, but failed to act on it.

As the Newlands hearings showed, even when opposed to big
business or trusts the average small businessman wished to mitigate
the effects of competition by what were essentially price, market, or
output agreements — the basis of the trade association movement. He
was, for all practical purposes, through with laissez faire, its costs,
risks, and possible gains. Even such nominal devotees of the doctrine
as Brandeis favored fair trade laws. For all practical purposes, both
big and small business wanted modification of the Sherman Act in
some substantial form.

Eddy realized that his trade association activities were of ques-
tionable legality, and in 1912 he published The New Competition,
a book frankly committed to the proposition that competition was
inhuman and war, and that war was hell. The Sherman Act encour-
aged competition, which inevitably led to consolidation and the de-
struction of small business. If trusts and unions were permitted, he
argued in a terse, pointed style directed toward businessmen, so
should price and output-fixing trade associations. His solution was
explicit: repeal the Sherman Act and pass a federal licensing law.
He urged creating a federal commission to adjust business contro-
versies, demand complete accounting, and administer the newly legal-
ized trade association movement. Trade associations would be given
all bids and contracts, and it would be the responsibility of the fed-
eral commission to enforce price and market agreements. The com-
mission would also have the power to fix prices. Eddy’s program,
vague as to precise size of the “small business” he was trying to save,
nevertheless was to have an important impact on business and sub-
sequent discussions of revisions of the antitrust law. 33

The Banking
Reform Movement

The panic of 1907 exposed the basic weaknesses in the nation’s
banking structure, and no one was more aware of the fact than the

182

THE ORDEAL OF W. H. T A 1

bankers. But the bankers had shown themselves to be hopelessly
divided on legislative matters and incapable of agreeing on any plan
to stabilize interest rates and price levels and to reduce fluctuations
— to introduce the much vaunted and poorly defined elasticity neccs
sary for a national, profitable banking system.

Despite these divisions, the banking community — or at least that
small portion of it that thought about such matters — was more set i
ously aware of the need for banking reform than ever before. Only
through reform, Henry Clews declared, could the responsible, con
servative bankers and businessmen be protected from the follies of
the irresponsible few. But the alternatives were diverse, very diverse,
and given the hostility of the House, the disunity among bankers
tended to nullify their larger desire for banking reform. Although the
majority of bankers favored some type of centralization of decision
making and greater elasticity of currency, their differences on the
type of backing for a more elastic currency, or the form and control
of the centralization, seemed insurmountable. 34 The Republican plat
form of 1908, reflecting the split in the banking community, merely
endorsed banking reform in the broadest and vaguest terms. Taft,
like Roosevelt, was bound to very little.

Nelson Aldrich still remained the key figure in politics concerned
with banking reform. His close relationship with Taft on other issues
was a crucial asset, but his reputation among Insurgents and Demo
crats was that of a blackguard conservative, and it seemed unlikely
that Aldrich alone could have any measure passed. Moreover, Al-
drich had strong feelings on banking reform that were not, according
to such sympathetic associates as Paul Warburg, based on even a
technically sound knowledge of banking principles. Aldrich’s defi-
ciencies were more than compensated for, however, by the many
able and sophisticated individuals around him, and after he took his
National Monetary Commission to Europe to study banking systems
there, Aldrich quickly educated himself in the field. More important,
Aldrich was soon to realize that his prominent association with the
banking reform cause was a political liability, and he was anxious
to play a somewhat less conspicuous role, at least so far as the pub-
lic’s view of the movement was concerned. Aldrich’s associates,
aware of the entire issue of public relations, also reiterated the need
to avoid associating banking reform with Wall Street, even though
Wall Street was the heart of the movement, if legislation was ever to
be attained.

183

Aldrich’s European tour convinced him of the virtues of central
hanking and the desirability of a broader-based asset currency uti-
lizing sound commercial paper as well as gold, bonds, and other
extremely restricted reserves. This change made it possible for Al-
drich, whose 1907 and 1908 schemes had been roundly opposed by
(lie American Bankers Association, to appeal to a much wider audi-
ence in the banking community. Indeed, Aldrich ceased being a
sectarian on banking reform and was able from 1909 on, especially
after a tour of Western banking centers that year, to count on greater
sympathy for his views. For the better part of 1909 and 1910, how-
ever, the topic of banking reform was restricted primarily to a small
segment of the banking community. Aldrich himself was increas-
ingly occupied with other legislative matters, especially the tariff,
and the return of prosperity after 1908 relaxed the pressure for
change. Bankers, in the meantime, began searching for unifying plans
that could solidify the banking community behind a single proposal.
The compromise plans were not hard to predict, and by the end of
1909 they were all to emerge at about the same time. There were
certain inevitable ingredients. Regional banking centers were implicit
in the clearing house movement that the A.B.A. had endorsed in
1906. Central banking of the German and English type was widely
appreciated, and every banking reformer realized that to be success-
ful any central banking plan would have to avoid the appearance of
being dominated by Wall Street, and they generally understood the
need to use sound commercial notes to create an elastic currency.

Although Victor Morawetz, the Morgan lawyer and railroad exec-
utive, is generally credited as the author of regional banking schemes,
the idea was already widely considered as an alternative when Mora-
wetz delivered his famous speech on the topic in November, 1909.
That very month, Maurice L. Muhleman, a New York attorney, had
proposed a very detailed plan for regional banking centers in the
Banking Law Journal. And a few weeks later, in a letter in the New
York Evening Post, Theodore Gilman, a New York banker, outlined
a system of regional clearing house associations, ultimately responsi-
ble to the Comptroller of Currency. Morawetz’ plan assumed that
a true central bank along English or German lines was impossible
and inappropriate for the United States but that sectional banking
districts under the ultimate direction of one central control board
might be just as effective. Since political intervention in banking and
currency had, in the final analysis, always been safe, it made little

184

THE ORDEAL OF W. H. TAI'

difference to Morawetz whether control of such a plan was entire ! y
in the hands of the government or entirely private. That the banker,
would support such a scheme was, quite coincidentally, verified when
the Banking Law Journal in December, 1909, announced that ir.
extensive poll among bankers showed that 59 per cent supported ,i
central bank free from “Wall Street or any Monopolistic Interest."

. . one cannot help feeling very confident,” Paul Warburg wrote
Nelson Aldrich . 35

Taft was no more decisive than Roosevelt on the issue of bank
mg reform during 1909 and 1910. Despite occasional pressure on
him to act, he had no concrete proposals before him and personally
understood very little about banking problems. Throughout most of
1910 the issue was a dormant one, even within the banking com
munity, and only Paul Warburg persisted in presenting a comprc
hensive plan of reform. Rehashing his central bank-clearing house
proposal of 1907 several times, in November, 1910, he announced
his “United Reserve Bank Plan” to the Academy of Political Science
in New York, with Aldrich present in the audience. The proposal
would create twenty regional banking associations under a central
bank board in Washington elected, save for one-fifth of the directors
appointed by the government, by the regional banking associations
and the shareholders of the central bank’s $100 million capital. The
central board would fix discount rates and define procedures for the
regions, issuing circulating notes on commercial paper which it pur-
chased from the regions.

Shortly after hearing his plan, Aldrich called upon Warburg to
participate with Frank A. Vanderlip of National City Bank, Henry
P. Davison of the House of Morgan, and Charles Norton of the First
National Bank in a week-long secret conference on his estate on
isolated Jekyl Island, Georgia. Aldrich was now ready to devote his
major attention to banking reform, and the representatives of the
most important Wall Street houses were to help him draft a bill.
The confidential nature of the session was demanded if the bankers
were to do then work without attaching obvious political liabilities
to the final product. The plan which emerged from the conference
was very much like Warburg’s in principle, and Warburg claimed
authorship for it even though Vanderlip actually drafted the final
plan. A National Reserve Association would be created in Washing-
ton to preside over fifteen major regions. The regional banking cen-

185

tcrs, controlled by private banks, would elect the forty-five board
members in Washington, but not more than four could come from
any region — thereby eliminating the possibility of Wall Street con-
trol. The National Reserve Association could issue notes against
bonds and commercial paper transferred to its vaults by member
hanks, and member banks could draw on the resources of the cen-
tral bank by rediscounting commercial paper. The scheme seemed
democratic enough, avoided Wall Street control, and was highly elas-
tic. All that was necessary was to make it politically attractive.

Aldrich and his associates were fully conscious of their liabilities,
not merely in the eyes of the public but with other bankers as well.
President Taft, on the other hand, seemed to be most amenable to
the new Aldrich Plan. Indeed, Taft had relied more on Aldrich for
advice on banking and monetary affairs than on any other individual.
But the President’s seeming support for the Aldrich Plan was ulti-
mately based on his opportunistic desire to utilize Aldrich for pur-
poses other than banking reform. But on January 29, 1911, in any
event, Taft wrote Aldrich: “I believe you have reached a most ad-
mirable plan and I want to assure you of my earnest desire to aid
in every way you and your colleagues of the monetary commission
in the movement to embody the plan in our statutes.” 36 Yet Taft
added, significantly, that he thought the plan would never pass a
Democratic House, and that it might take several years to educate
even the bankers to accept it. Taft continued to throw accolades at
the plan, but was never willing to act on it, and by the end of 1911
he was trying to stop bankers from using bank funds to lobby for it.

Thinking the President was firmly with them, the architects of
the Aldrich Plan turned their efforts to winning important banker
and business support for it. A special monetary conference of all
business organizations, convened by the National Board of Trade in
January, 1911, passed a resolution, written by Warburg, endorsing
the Aldrich Plan. At the beginning of February twenty-two key
bankers from twelve cities met in Atlantic City to consider the Al-
drich Plan. Sessions were closed, and all the conference publicly de-
clared at the end of three days’ discussion was that it endorsed the
plan and would actively support it. In fact, the confidential minutes
of the meeting — carefully edited by Aldrich to eliminate embarrass-
ing passages showing his total control of the conference — reveal the
innermost feelings of the nation’s big bankers. James B. Forgan, the

186

THE ORDEAL OF W . H. TAFT

leading Chicago banker, made it explicit that everyone present ac-
cepted the Aldrich Plan in advance and that only “some little mat
ters of detail” could be discussed. Indeed, the plan was endorsed at
the outset. The real purpose of the conference was to discuss win
ning the banking community over to government control directed by
the bankers for their own ends. It was made clear by the chairman
of the meeting, Congressman E. B. Vreeland, that if legislation were
not passed soon, the radicals would eventually try to do so. The par-
ticipants were fully aware of the menace of the growing state bank
ing movement, and referred to it many times. Although they agreed
with Paul Warburg’s statement that “it would be a blessing to get
these small banks out of the way and have the branches” for national
banks, it was realized that this would lead to terrific opposition from
smaller banks. 37 It was generally appreciated that the plan would
increase the power of the big national banks to compete with the
rapidly growing state banks, help bring the state banks under con-
trol, and strengthen the position of the national banks in foreign
banking activities. Concretely, the group discussed the problems of
converting other businessmen and bankers to the plan, with special
interest in the possibility of exploiting the recent Board of Trade
conference on the Aldrich Plan.

The Aldrich Plan emerged as a broad approach rather than as a
precise bill capable of imm ediate implementation. Indeed, it was
understood that many details would have to be worked out or ad-
justed to bring as many diverse banking and business interests as
possible behind the plan. In the meantime, it was generally conceded
by the plan’s architects that the important task was to create a pow-
erful political backing for the plan — and then try to have it passed.
It was especially crucial to remove the stigma of its having been orig-
inated by Wall Street interests and Nelson Aldrich. During the spring
of 1911 the backers of the plan moved to create the National Citi-
zens’ League for the Promotion of a Sound Banking System to ac-
complish the task. Warburg and the other New York bankers behind
the Aldrich Plan arranged to have the league centered in Chicago,
presumably as an outgrowth of the National Board of Trade con-
ference in January. New York was assigned the largest financial bur-
den — $300,000 — but George M. Reynolds and Forgan of Chicago
were assigned primary organizational responsibility.

To administer the league the bankers turned to Professor J. Laur-

187

cnee Laughlin of the University of Chicago. Laughlin, nominally
very orthodox in his commitment to laissez faire theory, was never-
theless a leading academic advocate of banking regulation. He had
drafted the Indianapolis Plan of 1897, and was sensitive to the needs
of banking as well as the realities of politics. Thoroughly conserva-
tive, Laughlin was no sycophant, no mere tool of the bankers behind
the league. Created in April by the Chicago Association of Com-
merce, nominally acting on behalf of the National Board of Trade,
the league’s leadership and board was Chicago based, composed
of businessmen, and was dependent on New York mainly for money.
Its stated purpose was “to carry on an active campaign for monetary
reform on the general principles of the Aldrich Plan without endors-
ing every detail of the National Reserve Association.” Its principles
included “Cooperation, with dominant centralization, of all banks by
an evolution out of our clearing-house experience,” financial liquidity
based on commercial assets, uniform discounts to all banks, and,
naturally, opposition to the domination of the banking system by any
interest or area. 38

So long as the Aldrich Plan remained a framework of discussion,
ns it did throughout 1911, most reform- min ded bankers endorsed its
rough outlines. Initially, at least, the proposal had seemingly unani-
mous support from the interested banking community. During May,
1911, the American Bankers Association approved its currency
co mm ittee’s strong amendments to the Aldrich Plan, sharply broad-
ening the type of notes eligible to be rediscounted. Despite the initial
unanimity of the major bankers, the united front of bankers began
falling apart on many important particulars. An immediate problem
was Theodore Roosevelt’s passive opposition to the Aldrich Plan,
which meant that all of the bankers’ hopes depended on Taft. Even
more serious was a nascent split within the National Citizens’ League
that grew wider by late summer, 1911. Laughlin was a political real-
ist — as were many of the bankers interested in banking reform — and
he was well aware that the association of a banking reform bill with
the name of Aldrich would mean the kiss of death. He was entirely
committed to the basic principles of the Aldrich Plan, but his com-
mitment was to the principle and not the man. He had been warned
by his former student and long-time aide, H. Parker Willis, that
Aldrich was the worst possible leader of the movement, and Laughlin
apparently agreed. Indeed, later Laughlin was even to suggest that the

188

THE ORDEAL OF W. H. TAFT

league never supported the Aldrich Plan at any time, but only
“sound banking principles.” (Warburg also made the same claim
many years later, but the reality of his position during mid-1911
belies this claim.)

Warburg and the New York bankers had erred in allowing the
Chicago reformer elements and Laughlin to run the league. The league
printed vast quantities of literature for businessmen, especially in the
South and West, where opposition was likely to be the strongest, but
hesitated to tie itself entirely to the Aldrich Plan. Moreover, Laugh
lin’s noncommitment to the plan had the support of the Chicago-
based board of directors, and his conviction that this was the
politically astute policy was strengthened by a personal survey of the
political situation in the Democratic House in June, 1911. Before
long there were two leagues in actual operation: the New York office
under Irving T. Bush, pursuing its slavishly pro-Aldrich program,
and Laughlin’s. During July a critical exchange of letters between
Warburg and Laughlin took place, and the latter freely admitted he
felt Aldrich’s name could kill a bill politically. Warburg stopped the
flow of funds to Chicago, and the newspapers were soon reporting
rumors of the division within the league. In New York on August 28
to try to patch up the now-public split, Laughlin was extremely con-
ciliatory. He agreed that the league would not present its own bill,
and that it would confer with the National Monetary Commission to
make the bill the best possible. In the meantime, however, the league
was to maintain its nonpartisan, educational role, thus increasing the
impact of its endorsement of the final commission bill when it was
formulated. In the same month Laughlin managed to convince Roose-
velt not to take a stand on the banking issue, in which the former
President had not the slightest interest. Despite these successes, and
the very extensive educational work on businessmen and newspapers
done by the league, the New York bankers ultimately failed to fulfill
their financial obligations to the Chicago organization, and gave less
than one-third of their quota. The league remained formally united,
if not united on tactics, simply because Laughlin appreciated its use-
fulness in his work, which was to remain pragmatic and opportunistic,
and to eventually reflect the sentiment of the large majority of
bankers. 39

The Aldrich Plan scored some successes in late 1911. In spite of
the opposition of Edmund D. Hulbert, the important Chicago banker,

189

mid James J. Hill, the plan picked up significant banking and business
support, in large part due to the effort of the league and to many
speeches by the plan’s supporters. In November the Aldrich Plan
forces seemingly were able to obtain their biggest coup — the endorse-
ment of the American Bankers Association — when Aldrich agreed to
modify the plan to allow the board of the National Reserve Associa-
lion, rather than the President of the United States, to remove the
head of the Association. This triumph was the undoing of the entire
Aldrich Plan movement.

On December 21, President Taft’s Message to Congress included
references to banking reform, which he endorsed in principle. Start-
ing out by saying he was looking forward to the final bill of Aldrich’s
National Monetary Commission, and by praising the general outlines
of the Aldrich Plan, he ended by throwing a damper on the core of
the plan — private banker control. “But there must be some form of
Government supervision and ultimate control, and I favor a reason-
able representation of the Government in the management.” 40 In
effect, the President had rejected the basic premises of the Aldrich
Plan. At the same time, Roosevelt was at best neutral toward it, and
the Democrats were still an unknown quantity, though likely to be
highly critical.

In January, 1912, the Aldrich Plan was submitted to Congress as
the Aldrich Bill. It received very little publicity and never came to a
vote. With Aldrich committed to retire, and a Democratic victory in
November seemingly inevitable, banking reform appeared to be a
dead issue.

CHAPTER EIGHT

□□□□□□□□

THE

POLITICS
OF 1912

william Howard taft had tried his best — and he had failed. He
had blundered tactlessly into innumerable political traps, and he was
grossly misunderstood by his contemporaries. He had inherited an
ambiguous legacy from Roosevelt, but in the final analysis that legacy
was reasonably conservative, and Taft was a conservative also. One
cannot help admiring Taft’s bumbling dedication to those noble con-
servative virtues, Reason and Moderation. Unfortunately for him, the
period was one interested in action and change, however conservative
in its ultimate intent, and Taft was simply out of step with his times.

The politics of 1912 were an outgrowth of the collapse of the de-
tente system under Taft and the failure of his Administration to estab-
lish the political conditions necessary for economic stability. Taft’s
suit against U.S. Steel has already been discussed. Prior to the initia-
tion of that suit in October, 1911, Taft had shown disturbing signs of
disloyalty to the detente structure his predecessor had created. During
June, 1911, Wickersham began considering antitrust action against

190

191

International Harvester, and in early July Perkins urged Smith to
speed the Bureau of Corporations’ inquiry into International Har-
vester, in the hope of forestalling action by Wickersham and vindicat-
ing the corporation. Several weeks later Perkins and Wickersham met,
and the Attorney General claimed to be ignorant of the fact that the
Bureau of Corporations already had an investigation under way. Pros-
ecution was a possibility, he admitted, but he promised to look at the
bureau’s material. Perkins, for his part, offered to “meet [Wickersham]
half way in an effort to do it by agreement rather than through a suit.”
The matter rested there until the outbreak of political war between Taft
and Roosevelt. In November, 1911, Wickersham decided that prog-
ress with the Harvester people had been exceedingly small, and after
fruitless negotiations with Harvester attorneys, in December Wicker-
sham obtained a large amount of data on Harvester, with company
approval, from the Bureau of Corporations. 1

The International Harvester case was essentially politically moti-
vated : it was directed against Roosevelt and his ties with the House of
Morgan. After several conferences with Harvester’s lawyers, on April
24, 1912, Wickersham filed a suit against the corporation. On the very
same day, however, he sent a collection of documents on Roosevelt’s
detente with Harvester to the Senate, exposing to the public the entire
collaboration between Roosevelt, the Bureau of Corporations, and the
House of Morgan. Roosevelt was enraged, as were the International
Harvester officials who for years had urged the Bureau of Corpora-
tions to release a report that would presumably spare them from such
abuse. Roosevelt immediately charged Taft with having been at the
Cabinet meeting at which the decision to postpone the prosecution of
Harvester was made, and Taft promptly denied having been present.
The charge became a major issue in the campaign of 1912, with
Roosevelt suffering the worst damage in the fray. The Bureau of
Corporations, however, later restored its confidential relationship with
the Harvester people, promising not to release new information to
the Department of Justice, and it even allowed Harvester to “offer
corrections to possible inadvertent errors” before the publication of
the bureau’s report. 2 The bureau report, finally released on March 3,
1913, was actually quite critical of the price policies of International
Harvester.

Taft’s antitrust prosecutions, or intimation of them, motivated more
by political considerations than by ideological commitments, were to

192

THE POLITICS OF 1912

cost the Republican Party dearly. By the end of 1911 Taft had not
only managed to alienate the Midwestern Insurgents, but many of the
party’s key business supporters as well. The stage was set for decisive
political change.

A Party
Is Formed

There is no question that Perkins would have preferred remaining
with the Republican Party in 1912. In late 1910 he told Morgan that
it seemed quite logical that Taft would be the party’s choice in 1912,
and at the time the prospect did not seem to disturb him. Although
Taft’s position on antitrust matters, and especially the detente system,
was totally unacceptable to Perkins, he liked Taft’s stated position in
favor of banking reform, and endorsed Taft’s stand against Gifford
Pinchot’s advocacy of government ownership of the hotly contested
Alaska coal lands. During late 1910, when the La Follette forces in
the Republican Party began organizing for the convention of 1912,
Perkins was more concerned with the growth of the Socialist vote and
the “rapidly approaching . . . crisis in this country on the question of
the relation between capital and labor and business and the State. . . ,” s
The National Progressive Republican League was formed in January,
1911, and Perkins had nothing to do with it.

The situation at the beginning of 1912 was entirely different. The
rank and file of the Republican Party, a Chicago politician could re-
port, were solidly for Roosevelt, who was not-too-coyly seeking the
nomination as the reluctant candidate. More important, “I think that
fully 90 per cent of the members of the [Chicago] Union League Club
favor Roosevelt.” 4 Roosevelt’s article in The Outlook in November,
1911, sharply improved his standing in Wall Street, but despite his
large and important backing, to win the nomination was a much more
difficult proposition. As Roosevelt well knew from his own manipula-
tion of the 1904 convention, the man who controls patronage can also
control the delegates. But the vast rank and file sentiment for Roose-
velt within the Republican Party was no myth, and the irritated, emo-
tional outburst of La Follette in a speech to the nation’s publishers in
early February — Roosevelt supporters immediately described it as a

193

nervous breakdown — eliminated the last major obstacle to a straight
fight between Taft and Roosevelt for the Republican nomination.

The story of Roosevelt’s political struggle for the nomination in
1912 has been reported in detail elsewhere — best of all by George E.
Mowry in his Theodore Roosevelt and the Progressive Movement —
and only a few key events need be reported here. What are more im-
portant, for our purposes, are the motives and ideology of the move-
ment’s key leaders. Although Roosevelt lost the support of Lodge and
other regular Republicans by his endorsement of the recall of state
judicial decisions in an otherwise strongly pro-big business speech in
Columbus on February 21, powerful big business support came to
Roosevelt’s aid at the beginning of 1912. Perkins formally joined the
Roosevelt cause in January, and was soon followed by Frank A.
Munsey. Munsey was a rags-to-riches Maine farmboy who had in-
vested a substantial part of his newspaper fortune in U.S. Steel, Inter-
national Harvester, and other Morgan enterprises. He strongly ad-
mired Roosevelt as a personality, and having been alienated by Taft’s
antitrust policy, he wished to return to Roosevelt’s policy on big
business. He had not the slightest interest in reform for the masses,
but was to be of great assistance in Roosevelt’s campaign. Important
aid also came from Dan Hanna, the son of Mark Hanna, and from
Walter F. Brown of Ohio. Only the previous April, Brown and Hanna
had been indicted by the government for taking rebates on ore ship-
ments. Although the case was settled out of court, they were irate with
Taft, and during January, 1912, Taft considered using the case to mete
out justice for Hanna and Brown’s treachery. 6 Supporters such as
Hanna, Perkins, and Munsey made it possible for the Roosevelt forces
to spend over $600,000 before the Republican convention in June. In
addition, Roosevelt had the backing of many former aides as well as
leading reformers. James R. Garfield, Medill McCormick, Gifford and
Amos Pinchot, Albert Beveridge, William D. Foulke, and many others
could be found with Roosevelt.

Although Roosevelt took the advice of Munsey and Lucius Lit-
tauer as well, Perkins soon became his most important adviser. In
March, 1912, Perkins revealed his latest thoughts in the Saturday Eve-
ning Post on what was still his major preoccupation, “Business and
Government.” Attacking Taft’s antitrust policies,- Perkins praised the
federal control of banks and railroads, and reiterated his belief in a
federal commission of businessmen that could pass on business actions

194

THE POLITICS OF 1912

and plans. Perkins’ ideas on the topic, in short, were the same as they
had been over the prior two years. During March Perkins confiden-
tially admitted he thought Roosevelt would not win the nomination be-
cause of Taft’s control of the Republican political machinery. . . Mr.
Roosevelt’s candidacy I look upon as only an incident of a great devel-
opment,” and essentially as educational. And although Perkins man-
aged to support other phases of Roosevelt’s reform proposals, his
primary, if not sole, concern was the issue of federal regulation. 6

As Roosevelt began winning impressive victories in the fight for
the various state delegations to the convention, especially in the West
and North, Perkins realized it was quite possible that Roosevelt might
win the nomination, and that it was likely that it could at least be kept
from Taft. But Perkins, until the bitter end, was primarily committed
to winning the public to his views, and not to the victory of any par-
ticular man. It was inevitable that the Taft forces exploit his connec-
tion with Morgan and try to link his support of Roosevelt to the
antitrust prosecutions of U.S. Steel and International Harvester. The
charge was made repeatedly, and rather than improve the cause of
Roosevelt, Perkins refused either to resign or play a less conspicuous
part in the Roosevelt movement. Perkins publicly tried to break the
image of himself as a Morgan tool by suggesting that the nature of the
Standard Oil and American Tobacco dissolutions had made Taft the
most popular man on Wall Street, which “is laughing in its sleeve at
what has been going on.” 7 But these well publicized statements by
Perkins, in addition to being incorrect, were beside the point — and
the picture of Roosevelt the great reformer being sustained by Perkins
was to cause incalculable damage to Roosevelt’s cause.

When the Republican convention convened in Chicago during mid-
June, Roosevelt had the support of many of the Republican machines,
and a large majority of the votes cast in the direct primaries. The Re-
publican National Committee had given virtually all of the contested
delegates seats to Taft several weeks earlier, and the convention
opened in a bitter atmosphere of mutual charges of deceit and bribery
by the Taft and Roosevelt forces. When the convention voted to ac-
cept the National Committee’s recommendation, thereby legitimizing
itself, the Taft forces were firmly in control. Behind the scenes efforts
to nominate a compromise candidate failed. On the night of June 20,
crowded into a hotel suite, several dozen of Roosevelt’s key advisers,
including Perkins and Munsey, discussed the possibility of forming a

195

new party. The decision was not merely a political one — it was pri-
marily financial. Campaigns were expensive, and Roosevelt knew it.
Munsey and Perkins were asked to consider whether they were willing
to assure a Roosevelt campaign adequate financial support. While
Munsey and Perkins immediately discussed the matter among them-
selves, Roosevelt and his political associates waited about the suite.

Perkins was not a man given to emotional or rash decisions. His
initial strategy had been to utilize Roosevelt’s candidacy for the Re-
publican nomination as a means of creating pressure for the proper
relationship between business and government. Even during his most
sanguine moments Perkins thought merely that Taft could be stopped
and someone more suitable — not necessarily Roosevelt — could win
the nomination. Now that a proposal to split the party had been
made, Perkins must have been even more pessimistic as to Roosevelt’s
chances — and his subsequent actions certainly indicate that Perkins
was more devoted to creating conditions for the attainment of his leg-
islative goals and principles than to the victory of Roosevelt. When,
early in the morning of June 21, Perkins and Munsey walked over to
Roosevelt and told him, “Colonel, we will see you through,” the two
capitalists were acting with utter realism. As Amos Pinchot, who
watched the whole affair, put it: “Though we did not realize it, the
Progressive party came into being, a house divided against itself and
already heavily mortgaged. . . ,” 8 The creation of the new party was
announced, and its nominating convention called for early August,
again in Chicago.

The Progressive Party meeting in Chicago in early August was less
a convention than a revival. It was a foregone conclusion that Roose-
velt was to be the party’s candidate; the real issue was the principles
upon which the party was to stand. The leaders of the new party, as
Alfred D. Chandler, Jr., has shown, were not likely to be excessively
radical, and all too many have confused their enthusiasm in early
August with their politics. A good two-thirds were businessmen of
consequence and lawyers, and hardly any farmers or workers could be
found in important positions in the party. Professionals and editors
composed the remainder, and the top echelons of the Progressives, on
the whole, were urban, upper middle-class Anglo-Saxon Protestant
refugees from the Republican Party. Some, such as the California Pro-
gressives, were bitterly antilabor. 9 The large bulk were psychologically
committed to clean, efficient government compatible with their class

196

THE POLITICS OF 1912

interests. Their reform sentiments were flexible within the larger
bounds of capitalism, and their feelings — and I stress the term “feel-
ings” — lacked precision on any given topic save the personality of
Roosevelt.

Given this plasticity, the ensuing events at the Progressive conven-
tion were quite logical. On August 5 Senator Albert J. Beveridge
opened the convention with a speech that was unambiguous in its at-
tack on “invisible government” in the two old parties. Beveridge had
long taken a New Nationalist position on the inevitability of trusts and
on the need to distinguish “good” trusts from “evil” ones. “What we
call big business is the child of the economic progress of mankind,” he
told the delegates. “So warfare to destroy big business is foolish be-
cause it cannot succeed and wicked because it ought not to succeed.”
Although he incidentally called for woman suffrage and child labor
laws, as well as the revision of the tariff in some unspecified direction,
the main burden of Beveridge’s wildly received oration was the folly
of Taft’s antitrust policy. Referring to the fact that other nations
encouraged their business, in soaring phrases Beveridge held out the
golden image of the Progressive future:

And then we mean to send the message forth to hundreds of thousands
of brilliant minds and brave hearts engaged in honest business, that they
are not criminals but honorable men in their work to make good business
in this Republic. Sure of victory, we even now say, “Go forward, Ameri-
can business men, and feed full the fires beneath American furnaces;
and give employment to every American laborer who asks for work. Go
forward, American business men, and capture the markets of the world
for American trade; and know that on the wings of your commerce you
carry liberty throughout the world and to every inhabitant thereof .” 10

Roosevelt was greeted by a thunderous crowd the following day,
and in his “Confession of Faith” to the convention he opened by tell-
ing the fifteen thousand wildly cheering faithful: “Our fight is a
fundamental fight against both of the old corrupt party machines,
for both are under the dominion of the plunder league of the profes-
sional politicians who are controlled and sustained by the great bene-
ficiaries of privilege and reaction.” His tone was indeed radical, as he
scorched his former political associates with his fiery invective, an-
nouncing “The first essential in the Progressive programme is the
right of the people to rule.” This should include direct Presidential
primaries and direct election of Senators, as well as initiative, referen-

197

dum, and recall, so long as it was not used “wantonly or frequently.

. . . indiscriminately and promiscuously,” which “would undoubtedly
cause disaster.” Such measures, he added, should be enacted where
“government has in actual fact become non-representative.” Roose-
velt’s welfare proposals were hardly more specific. He favored creat-
ing minimal occupational standards for workers, standards to be
determined by independent experts — a la scientific management —
rather than by the workers themselves. Minimum wage standards, he
urged, should be determined by local commissions, but he hesitated
to call for a minimum wage law for men. Workman’s compensation
laws that were “fair” were endorsed by Roosevelt, as well as a maxi-
mum hour law for women and a child labor law, but he failed to
mention any age. Having established his Progressive credentials, how-
ever vague they were on specifics, Roosevelt then turned to the main
and most extensive topic of his speech, “business and the control of
the trusts.”

The aim of Progressives, Roosevelt began, was to allow all decent
men to prosper, “and we heartily approve the prosperity, no matter
how great, of any man, if it comes as an incident to rendering service
to the community. ...” The wage worker and the consumer had a
vital interest in business prosperity, which was the source of all wel-
fare. Criticizing the Sherman Act and Taft’s antitrust policies, he
urged a revision of the law to recognize that “if we are to compete
with other nations in the markets of the world as well as to develop
our own material civilization at home, we must utilize those forms
of industrial organization that are indispensable to the highest in-
dustrial productivity and efficiency.” The Sherman Act, Roosevelt
declared, ought to be revised to allow for a “national industrial com-
mission” similar to the I.C.C. Such a commission could prevent over-
capitalization, and would be able to tell businesses in advance what
they could legally do if they voluntarily came under its jurisdiction.
Again and again he reiterated the value of big business in foreign
trade, and the need for honesty and fair profits.

Adding appropriately vague support for greater elasticity in the
currency and for conservation, Roosevelt concluded by notifying the
roaring audience that “We stand at Armageddon, and we battle for
the Lord.” “And while splendidly progressive it is,” Munsey wrote to
Roosevelt, “at the same time, amply conservative and sound.” 11

The next crucial event of the convention — the nomination was by

198

THE POLITICS OF 1912

this time merely an occasion for more enthusiasm — was the writing
of the platform. The resolutions committee included Amos Pinchot,
who was one of the few real radicals in the party, Charles McCarthy
of Wisconsin, and others. As they completed their drafts on various
issues, they sent them up to a room where Roosevelt, Munsey,
Perkins, and a few others were gathered to edit them. When they
reached the section on the Sherman Act, they drafted a statement
beginning “We favor strengthening the Sherman law. . . ,” and spell-
ing out a few applicable areas. The statement was duly sent upstairs,
and Perkins protested. Roosevelt concurred with him, and the plank
was revised. The next day, however, as the chairman of the conven-
tion was reading the platform draft to a bored convention, the origi-
nal Pinchot-McCarthy resolution was read. Perkins, who was seated
next to Pinchot on the stage, immediately leaped to his feet and
excitedly told Pinchot, “Lewis has made a mistake. That doesn’t
belong in the platform. We cut it out last night.” 12 A conference with
Roosevelt was immediately called, the statement was eliminated, and
the press was duly notified. Perkins had won the day.

The basic problem for the Republican and Progressive parties
was how to appear radical while really remaining conservative. The
Republicans stood on Taft’s record in matters of income and corpo-
rate taxation, postal savings, railroad reform, and other issues. The
Republican platform called for banking reform without endorsing the
Aldrich Bill, while the Progressives favored reform in vague terms,
attacking the Aldrich Bill in the same manner that Taft had generally
laid out in his 1911 Message. In a completely equivocal manner, the
Progressive platform condemned the Payne-Aldrich Tariff and pro-
posed an invesdgating commission instead, without the slightest in-
dication whether the Progressives favored higher or lower tariffs. The
Progressives favored ratification of the income tax amendment, as did
Taft, but were unique in favoring woman suffrage. Direct primaries
and direct election of Senators were endorsed by the Progressives,
along with initiative, referendum, and recall — enacted by the states,
not the federal government. The Progressives also endorsed a spate
of very generally worded welfare reforms : prohibition of child labor,
minimum safety and health standards for occupations, minimum
wages for working women, the eight-hour day for women and youth,
and one day’s rest in seven for all workers.

199

But the longest section of the Progressive platform was devoted
to “Business” and “Commercial Development,” and it is here that
the new party was to focus its attention. “We therefore demand,” the
platform declared, “a strong national regulation of interstate corpora-
tions. The corporation is an essential part of modem business. The
concentration of modern business, in some degree, is both inevitable
and necessary for national and international business efficiency.” A
federal co mmi ssion similar to the I.C.C. was demanded to enforce
active supervision and maintain complete publicity, to attack “unfair
competition” and “false capitalization.”

Thus the businessman will have certain knowledge of the law, and will
be able to conduct his business easily in conformity therewith; the in-
vestor will find security for his capital; dividends will be rendered more
certain. . . . Under such a system of constructive regulation, legitimate
business, freed from confusion, uncertainty and fruitless litigation, will
develop normally. . . .

Citing Germany as an ideal example for emulation, the Progressives
suggested “that their policy of co-operation between Government
and business has in comparatively few years made them a leading
competitor for the commerce of the world. It should be remembered
that they are doing this on a national scale and with large units of
business. . . .” “The time has come when the federal government
should co-operate with manufacturers and producers,” the Progres-
sives declared, ignoring Taft’s economic imperialism, “in extending
our foreign commerce.”

The Republican plank on “monopoly and privilege” was virtually
identical to the Progressive trust plank. They too endorsed an amend-
ment to the Sherman Act to define offenses in greater detail, giving
greater certainty to business. To help ad mini ster it, a “Federal trade
commission” to “promote promptness” was also favored. Despite the
substantial difference on welfare measures, the two parties were re-
markably similar in their major proposals.

Indeed, Taft was well aware that the significant difference be-
tween the Republican and Progressive parties was not their plat-
forms, and he shrewdly chose to emphasize the big business support
for the Progressives. In this game, Perkins cooperated quite fully by
concentrating on those issues which, in effect, vindicated Taft — but
which were also the major reasons for Perkins’ and Munsey’s support
for the new movement. Taft was sincerely convinced, at least from

200

THE POLITICS OF 19 12

the beginning of 1912 on, that Roosevelt had sold out to U.S. Steel
and the House of Morgan. . . letting the people rule when reduced
to its lowest terms, it seems, is letting the Steel Trust rule,” Taft
commented on Roosevelt in April. 13 Taft also had important business
friends, but the House of Morgan was definitely persona non grata in
Washington in 1912. The Harvester suit, in all likelihood, was a con-
sequence of this alienation.

Perkins’ activities were not merely embarrassing for the House of
Morgan, but unsuccessful as well. Although Perkins had resigned as a
partner in the firm in December, 1910, he was still on the boards of
many of its major interests. In addition, J. P. Morgan, Jr., heir-
apparent to the firm, disliked Perkins and was jealous of his father’s
dependence on him. Now, in retaliation for Perkins’ political activi-
ties, the Morgan companies were being attacked by Taft. When
Perkins assumed the position of chairman of the executive com-
mittee of the new party, Morgan, Jr. moved to eliminate the thorn
in his side. On August 13 Morgan, Jr. suggested Perkins resign from
the board of U.S. Steel in order to give the corporation a nonpartisan
reputation. Several days later, after Perkins refused, Morgan, Jr.
bluntly wrote Perkins that the public associated his actions with Steel,
and that the company could not afford to get “identified with current
politics.” Morgan again suggested that Perkins resign, and in this
request he claimed the support of Gary, Frick, and others. But
Morgan, Jr. apparently did not have the backing of his father — in-
deed, it is probable the elder Morgan knew nothing about the matter
— and it is unlikely that Gary was critical of Perkins’ new role. Amos
Pinchot, who later regarded the Progressive Party as little more than
the tool of the Morgan interests, suggests that Gary secretly donated
to the party, and although he had only his intimate contact with
Perkins, Roosevelt and the party rather than concrete data as proof,
it is still unlikely that Gary would have been hostile to the new ven-
ture. Perkins’ response to young Morgan’s challenge was significant.

Were I, in this work, advocating anything that if put through would be
to the disadvantage of the Corporation, then I of course should leave
its board; but as much that I am advocating would be decidedly to every
corporation’s advantage in a perfectly proper way, I can see no harm and
much possible good in what 1 am doing. 14

Perkins stood his ground and remained with U.S. Steel, mainly be-

201

cause J. P. Morgan, Jr. had no real support for his position. The
significant fact is not that an effort was made to fire Perkins for his
politics, but that once having been tried it failed.

Having remained in both the Progressive Party and U.S. Steel to
further policies to “every corporation’s advantage,” Perkins made the
most of it. The trust issue, and Perkins himself, became the focus of
the party’s campaign. Western party leaders were irate, then indig-
nant, when the only campaign literature they received explained the
party’s trust position, defended the Morgan companies, and explained
away the growing attacks on Perkins as the political representative of
Wall Street. Obtaining control of the New York office of the party,
Perkins issued a weekly, The Progressive Bulletin, for national dis-
tribution, featuring the trust issue primarily. Amos Pinchot’s much
more radical and tediously long pamphlet on What’s the Matter With
America received comparatively small circulation. But as Pinchot
was later to find out, it was really he who was out of tune with the
Progressive song in 1912.

Munsey, in the meantime, controlled the new party’s Washington
office, which was located in the Munsey Building. Since Munsey’s
newspapers were among the very few supporting Roosevelt, he too
shaped the party’s functional program. Because the party lacked a pa-
per in New York, Munsey purchased the New York Press for the occa-
sion. Taft had betrayed the traditional economic policies of the GOP,
Munsey announced in the Press in mid-September, and he freely ad-
mitted he supported Roosevelt “chiefly because I wanted to see the
economic policies of the Republican party continued in force. . . .”
“Of all the big progressives,” Munsey announced in the introduction to
a campaign pamphlet he distributed, “Roosevelt is to-day preeminently
the biggest and sanest conservative — a progressive conservative.” 15

Taft failed to obtain any significant business support for his 1912
campaign, and so the obvious susceptibility of the Progressives be-
cause of Munsey and Perkins was doubly inviting. In April the Senate
formed a new Subcommittee on Privileges and Elections under
Republican Senator Moses E. Clapp, and in October the committee
decided to investigate pre-convention campaign donations, those of
I’erkins and Munsey in particular. In order to assure maximum im-
pact, Taft provided guidance and evidence behind the scenes, and he
had advance knowledge of the major lines of questioning the com-
mittee would take. Of special interest to the President was the con-

202 THE POLITICS OF 1912

nection between International Harvester, Gary, Perkins, and the
Progressive Party.

Taft unfortunately found Perkins and the Progressives less than
obliging, for the issue of big business contributions in the 1904 and
1908 Republican campaigns was also interjected, much to the em-
barrassment of the President. The House of Morgan had given
$150,000 to the Taft campaign in 1908, and if that was good enough
for Taft in 1908, why was it wrong for Perkins and Munsey to donate
to Roosevelt in 1912? Still, it was revealed that Dan Hanna had
donated $177,000 toward Roosevelt’s pre-convention expenses, Perk-
ins had given $123,000, Munsey had contributed $118,000, and so
forth. The Taft forces had accused International Harvester of having
donated a major part of at least two million dollars contributed to the
Roosevelt campaign, and Perkins demanded proof. The President
overextended his case, and Perkins exploited the fact. Indeed, Perkins
claimed, Cyrus McCormick favored Wilson, Harold McCormick op-
posed Roosevelt, and none of the McCormicks had donated to
Roosevelt’s pre-convention campaign. It is indeed true that the Mc-
Cormicks did not donate to Roosevelt’s pre-convention campaign,
but Taft was correct in insisting that many of the family supported
the new party; Perkins knew it, and kept the information confidential.
The party’s financial records for 1912 list C. K. McCormick, Mr.
and Mrs. Medill McCormick, Mrs. Katherine McCormick, Mrs. A.
A. McCormick, Fred S. Oliver, and James H. Pierce. The largest
donations for the Progressives, however, came from Munsey, Perkins,
the Willard Straights of the Morgan Company, Douglas Robinson,
W. E. Roosevelt, and Thomas Plant. 16

In fact, the Clapp inquiry embarrassed both Taft and Roosevelt.
The voters gave Woodrow Wilson 45 per cent of their votes — and
the Presidency of the United States.

Not a few Progressives felt cheated by the election, not only
because of a fickle electorate but because of Perkins’ militantly pro-
big business activities. During the campaign ostensible unity was
maintained, although there was substantial hostility toward Perkins,
and at one point Senator Joseph Dixon, the party’s chairman, nearly
resigned because of him. In all of these conflicts Roosevelt ultimately
supported Perkins. Now, the election lost, a number of Progressives
demanded a reckoning.

203

Munsey deserted the party shortly after the election, although he
donated a small sum in 1913. Roosevelt himself confided to Arthur
II. Ixe that “Whether the Progressive Party itself will disappear or
not, 1 do not know.” The story of the decline of the party has been
told in detail elsewhere. 17 As the party lost votes in 1914, and as
Roosevelt, Garfield, and others became more jingoist on the issue of
the World War, the Progressives simply became a pawn in Roose-
velt’s and Perkins’ efforts to shape the policies and candidates of the
Republican Party. The strategy was to fail badly. But until 1916 the
party lingered on, losing strength each year, and with Perkins as its
heud it stressed the trust issue more than any other. By October,
1914, Roosevelt confided to Perkins that he would never run again.
At about the same time, much to the chagrin of Hiram Johnson and
many Midwestern and Western Progressives, Perkins began suggest-
ing the party be abandoned. During February, 1916, Perkins was
referring to himself as essentially a true Republican, and he aided
Roosevelt in a futile effort to have the Republicans nominate Lodge
In 1916. The Progressive stalwarts, after the formal Roosevelt-
Pcrkins switch to the Republicans in mid-1916, regarded their former
leaders as traitors. The party, out of tune with dominant trends,
simply disintegrated. 18

Amos Pinchot felt he had been swindled. Hostile to the Perkins
wing, and really a Jeffersonian Democrat at times on the verge of
socialism, Pinchot wrote Roosevelt in December, 1912, about the
domination of the party by Perkins and the Progressive stand for big
business. Roosevelt strongly defended Perkins, as he did against all
future assaults. During 1914 Pinchot was to lead the movement to
depose Perkins, and Roosevelt publicly attacked him as the “lunatic
fringe.” Of all the disenchanted Progressives, only Pinchot tried to
generalize his experience into a coherent view. From 1925 until
1933 he attempted to write a magnum opus entitled Big Business in
America. He had, after all, personally known many of the principals
in the history of the era, and he assiduously utilized the Stanley
Committee hearings, Ida Tarbell’s biography of Gary, and other
public sources. The work was never patched together in any system-
atic form, but his rough thesis is clear: a plutocracy had taken over
the United States as a result of the alliance of big business and
government. Morgan and the U.S. Steel interests, in particular, had
influenced Roosevelt and had had a decisive voice in every recent

204

THE POLITICS OF 1912

presidential nomination. The steel company “needed political assist-
ance” in attaining its initial goal of monopoly, since its efforts to
eliminate competition had failed. Gary’s price-fixing proposals, he
suggested, were really an attempt to get the government to do some-
thing for U.S. Steel that it could not do for itself. Pinchot was fully
aware of the detente system between Morgan and the Roosevelt
Administration, and the Progressive Party was described as the result
of the failure of that system under Taft. Pinchot denied monopoly
was inevitable, and, in effect, he suggested a rough, unsophisticated
theory of political capitalism based on his own experiences and public
documents. 19

Both Pinchot and Harold L. Ickes, another active Progressive,
believed that George Perkins had killed the Progressive Party, and in
a literal sense they were entirely correct. But the commitment of the
membership was primarily to a very fallible person, Roosevelt, rather
than to a program; and to the extent that program was considered, it
was substantially similar to that of Taft or Wilson. The Progressives
had no compelling, distinctive reason for existence. The party’s
fortunes were based almost entirely on the desires of the Morgan
interests — most Insurgents stayed with the Republicans in 1912 —
and when Woodrow Wilson was elected to the Presidency, it was to
Wilson that the larger business interests of the United States were to
turn for relief.

The Democratic
Victory

Woodrow Wilson’s career before assuming the Presidency has
been exhaustively treated by Arthur S. Link, and only a few aspects
of it need to be recalled here. A Calvinist by faith, and trained at
Johns Hopkins in the classical liberalism of laissez faire and the politi-
cal Whiggery of Burke, Wilson is probably incorrectly characterized
as a mere nineteenth-century liberal filled with certitude about his
opinions. Wilson was a conservative, and his early history was that
of the antilabor, paternalistic conservative who nevertheless believed
that child labor and factory laws were desirable if only to equalize
competitive conditions. But it would be wrong to make too much of

205

Wilson’s early intellectual training and views, for although Wilson
was formally an intellectual, the major part of his career prior to his
active involvement in politics was spent as an administrator. Ideas
were important to Wilson, but Wilson was not exclusively a man of
ideas whose major preoccupation was with refining and defining
them; and for this reason, when he was called upon to relate his ideas
to his actions, there was always a natural amount of free play as to
how they might be applied. This flexibility was not so much the result
of opportunism as a lack of precision.

To suggest that Wilson was to later undergo a transformation as a
political figure is to assume too much both for the intensity of Wil-
son’s early conservatism and the extent of his later liberalism. There
was a remarkable ideological consistency in Wilson’s career, largely
because his ideology was never so sharply defined that we may ex-
amine every change and intonation. Suffice it to say here, as Link and
William Diamond have already shown, that Wilson’s early career
was that of a conservative, anti-Bryan Democrat who believed that
reform was very largely a matter of good individuals replacing evil
ones, and that only businessmen could ultimately understand business
problems.

Wilson was in large measure the foil of Eastern conservative
Democrats against the threat of William Jennings Bryan, and he was
quite deliberately groomed for this role by George Harvey, a million-
aire with important connections with Morgan, and then by Thomas
Fortune Ryan, Adolph S. Ochs, and other major capitalists. Harvey,
who started out as a newspaper man, made a fortune in electric trac-
tion and eventually acquired control of Harper’s Weekly, from
February, 1906, on openly advocated Wilson for President; he was the
first to do so. Harvey had helped make the career of James Smith,
Democratic boss of New Jersey, and it was Smith who imposed
Wilson on the New Jersey party as its gubernatorial candidate in
1910. As Wilson entered the political arena, his views on public
issues were sought after. In late 1907 he supported the Aldrich Bill
on banking, and was full of praise for Morgan’s role in American
society. But progressivism, or the progressive tone, was the wave of
the future, and Wilson responded to the pressure of the times. The
individual had to be reintegrated into the community voluntarily, he
told the American Bankers Association somewhat vaguely in Septem-
ber, 1908, while opposing Bryan, or the community would undertake

206

THE POLITICS OF 1912

the task. During the same period he opposed government regulation
of corporations, trustbusting, and similar measures, although by
1910 he spoke highly of the trends in municipal reform. In emphasis,
Wilson favored local rather than federal initiative, but he increasingly
saw the advantages of federal legislation if it stressed individual
rather than social guilt in, for example, corporate abuses. Perkins
found this emphasis most compatible, and upon Wilson’s election to
the New Jersey governorship as a reformer, Perkins wrote him: “As
to your views on the business questions of the hour, in my judgment
they are absolutely sound.” 20 By 1910 Wilson felt that giant business
was axiomatic with efficiency. In an eminently conservative speech to
the American Bar Association in 1910, he attacked trustbusting:

If you dissolve the offending corporation, you throw great undertakings
out of gear ... to the infinite loss of thousands of entirely innocent per-
sons and to the great inconvenience of society as a whole. ... I regard
the corporation as indispensable to modem business enterprise. I am not
jealous of its size or might, if you will but abandon at the right points
the fatuous, antiquated, and quite unnecessary fiction which treats it as
a legal person. . . , 21

Wilson was to break his alliance with Boss Smith of New Jersey,
thereby earning a reputation as a reformer, and in December, 1911,
on the advice of Colonel Edward House, he finally broke with
Harvey. Although Link is correct in characterizing many of Wilson’s
statements on public issues at this time as “vague, idealistic, and
meaningless,” some of these statements are important to understand-
ing Wilson’s feelings immediately prior to his nomination and his
presentation of the New Freedom. As late as December, 1911, Wil-
son opposed the recall of judges, and he favored each state’s deciding
on initiative for itself, without specifying whether it would be desir-
able or not.

It was in the area of antitrust problems that Wilson showed the
greatest conservatism, and his record in this field as Governor of New
Jersey was later used against him by the Progressives. At the begin-
ning of 1912 he was rather aggressively c allin g for the cultivation of
foreign markets and the development of a powerful merchant marine.
So far as competition was concerned:

. . . nobody can fail to see that modern business is going to be done by
corporations. The old time of individual competition is probably gone by.
It may come back; I don’t know; it will not come back within our time.

207

I dare say. We will do business henceforth, when we do it, on a great and
successful scale, by means of corporations.

I am not afraid of any corporation, no matter how big. I am afraid
of any corporation, however small, that is bad, that is rotten at the core,
whose practices and actions are in restraint of trade. So that the thing
we are after is not reckoning size in measuring capacity for damage, but
measuring and comprehending the exact damage done. 22

To the obvious criticism that this sounded very much like Roose-
veltian doctrine, Wilson frankly responded:

When I sit down and compare my views with those of a Progressive Re-
publican I can’t see what the difference is, except that he has a sort of
pious feeling about the doctrine of protection, which I have never felt. 23

Even after his nomination, Wilson retained a position on the trust
issue remarkably similar to his earlier stand, despite the vague Demo-
cratic plank in favor of a strengthened antitrust law and a detailing
of its standards of illegality, which committed Wilson to very little.
Immediately after his nomination Wilson condemned the methods the
trusts had used to establish monopolies, but then withdrew by de-
claring “that what we are seeking is not destruction of any kind nor
the disruption of any sound or honest thing. . . .” “I am happy to
say,” he continued, “that a new spirit has begun to show itself in the
last year or two among influential men of business ... to return in
some degree at any rate, to the practices of genuine competition.” This
conversion, miraculous as it seemed, promised “to show what the
new age is to be and how the anxieties of statesmen are to be eased if
the light that is dawning broadens into day.” 24

Historians have assumed that the meeting of Wilson and Brandeis
on August 28, 1912, was to transform Wilson’s emphasis on the anti-
trust question and to lead to the doctrine of the New Freedom. The
problem of the coherence of the New Freedom, and the extent of its
departure from Wilson’s earlier views, can be examined later. The
real question is: how radical was Brandeis’ economic philosophy, and
on what specifies did it add new dimensions to the great debates on
economic issues during the Progressive Era?

Brandeis, unhappily, was antilabor in fact as well as in principle.
He defended the right of labor to organize, but only in open shops,
and he served as the attorney for the Boston printing employers dur-
ing their antiunion struggles of 1904. If unions could be incorporated,

208

THE POLITICS OF 1912

he suggested, they might be sued — and therefore would act conserva-
tively, setting up a wall against socialism. By 1910 Brandeis became
enamoured of the “scientific management” doctrines of Frederick W.
Taylor, and did more to popularize the theory in his attacks on the
railroads in the Rate Case of 1910 before the I.C.C. than Taylor and
his followers had been able to do in years of education. Brandeis was
to defend the bonus system and proclaimed Taylor a genius, against
intense union hostility. Although Brandeis was thoroughly hated by
the Boston social elite for his attacks on the corruptly managed New
Haven Railroad, his position on scientific management was to win
him considerable business sympathy.

Scientific management was a thoroughly totalitarian philosophy,
and merely a rationale for cutting costs. Taylor placed the movement
in the same category as conservation, and if we understand that term
to mean systematic exploitation he was correct. In the last analysis,
its success depended on workers working harder and the elimination
of loafers. Obedience, discipline, and imposed norms were required.
“Scientific management makes collective bargaining and trade union-
ism unnecessary as means of protection to the workers,” Taylor
frankly stated. 25 In fact, although he incidentally promised higher
wages, Taylor’s reputation and fame were based on his promise of
lower labor costs for businessmen.

Although Brandeis regarded such giants as U.S. Steel as artificial
efforts to suppress competition, preserve inefficiency, and control a
share of the market that could not be maintained without mergers, he
primarily focused on the problem of efficiency rather than power
concentration and the social relationships that resulted from it. Very
much the same is true in his condemnation of the money trust — it
was artificial and inefficient rather than a power concentration able
to subvert the democratic process beyond the elimination of new
entrepreneurs. It is primarily Brandeis’ view of the contrived nature
of much concentrated capital that is remembered, but several other
paradoxes were intrinsic to his economic philosophy. He strongly
favored price-fixing and fair trade laws because he regarded price
cutting as the road to monopoly, but price-fixing was close to the
hearts of Gary, Carnegie, and other big industrialists as well. Indeed,
given lower costs, it was their best assurance of guaranteed high
profits. Moreover, Brandeis was sanguine about the future of business
as a whole, in large part because of the influence of scientific manage-

209

ment on his thinking. Business was ceasing to be an exploitive enter-
prise, he stated in 1912, but rather “It is an occupation which is
pursued largely for others and not merely for one’s self. ... It is an
occupation in which the amount of financial return is not the accepted
measure of success.” As efficiency-minded business moved toward
this goal, improving products and eliminating waste, “the great in-
dustrial and social problems expressed in the present social unrest
will one by one find solution.” 26

Brandeis favored workmen’s compensation, and was attracted to
La Follette for a time, but he opposed direct government via the
recall and initiative. He supported Roosevelt at the beginning of
1912, but felt uncomfortable about his trust position. When Brandeis
wandered into the Wilson camp in August, 1912, he was hardly a
crusading radical.

Nor was Wilson a great crusader either, and the New Freedom
did not qualitatively alter his position on the problem of the govern-
ment’s relationship to big business. He turned to the topic not so
much because he had anything obviously new to say on the problem,
but because he was convinced by Brandeis that it was a good cam-
paign issue. Wilson and his advisers were well aware of the impor-
tance of the business vote, let alone business donations, and that vote
was very much sought after both by Wilson and Roosevelt. The New
Freedom was general rather than specific in its assumptions and
demands.

In terms of his analysis of the relationship of giant size to effi-
ciency, Wilson took Brandeis’ position. Trusts were not inevitable,
but were artificially created and maintained by the control of credit,
supplies, and raw materials. On the other hand, Wilson introduced a
mitigating confusion. “I am for big business, and I am against the
trust.” This was safe enough, since the point at which big business
became a trust was never defined, and the number of actual trusts —
in the sense of having effective market control — was too small to
fill big business as a whole with anxieties about Wilson’s statements.
“Big business is no doubt to a large extent necessary and natural.
The development of business upon a great scale, upon a great scale of
cooperation, is inevitable, and, let me add, is probably desirable.”
Some might argue that mere size, even without monopoly control,
posed serious political and economic dangers, but not Wilson. “I

210

THE POLITICS OF 1912

admit that any large corporation built up by the legitimate processes
of business, by economy, by efficiency, is natural; and I am not afraid
of it, no matter how big it grows.” If the law demanded “fair play”
from all, small business could successfully compete with the giant
corporations.

The focus of Wilson’s New Freedom was not on the distribution
and control of power, but on the freedom of entry to small business.
“. . . we are rescuing the business of this country, we are not injuring
it.” Quite the contrary, Wilson was promising the freedom to exploit
to all.

. . . not one single legitimate or honest arrangement is going to be dis-
turbed; but every impediment to business is going to be removed, every
illegitimate kind of control is going to be destroyed. Every man who
wants an opportunity and has the energy to seize it, is going to be given
a chance . 27

How does one distinguish the New Freedom from Roosevelt’s
New Nationalism? Practically, one cannot; but, for obvious political
reasons, Wilson was compelled to distinguish his view from that of
Roosevelt’s — ignoring his statement on their common beliefs in Janu-
ary, 1912. The Progressive Party, he declared, accepted monopoly
and proposed making bad trusts good by utilizing an executive com-
mission. Wilson, in fact, was not opposed to a commission, and since
1908 had favored one based on a “uniform process acting under
precise terms of power in the enforcement of precise terms of regula-
tion.” 28 Roosevelt, he now claimed, wished to create a commission
with arbitrary criteria of control, and he came remarkably close, at
one brief point, to repudiating the co mmi ssion idea. In a prescient
statement he was later to forget, Wilson suggested, “If the govern-
ment is to tell big businessmen how to run their business, then don’t
you see that big businessmen have to get closer to the government
even than they are now?” 2B The very plan, he pointed out, was con-
ceived by the men who were to be controlled.

Much of the New Freedom was defined by Brandeis, but the defi-
nition never went to the extent of binding the future President to any-
thing concrete. Indeed, Wilson’s speeches on the New Freedom must
be regarded merely as campaign documents — to be used and for-
gotten. The New Freedom was against trusts and for big business. It
was for big business and for little business as well. It promised equal-

211

ity of opportunity, but pledged no specific measures by which it might
be guaranteed. Wilson assumed, in much the same way as Roosevelt,
that businessmen were largely men of good will, and he saw no ten-
sion between the concentration of wealth and political democracy,
save insofar as the power of wealth was used to exclude new mem-
bers from the business class. There was justice in mobility, and the
New Freedom was an imprecise interpretation of the economy rather
than an effort to bring the economy under the control of a political
democracy. Wilson implicitly rejected laissez faire, save insofar as he
wanted to make its spirit relevant to the twentieth-century economy.
But social change is rarely based on vagaries, and on specifics
Wilson’s New Freedom was to start out in a vacuum — a vacuum that
was to be filled for him by men with more specific goals in mind, men
who were able to play on the new President’s weaknesses.

Wilson’s reasonable, moderate stand on economic issues was to
win him many important business supporters, although Henry Lee
Higginson questioned whether Wilson really appreciated business
problems.

It would do the Governor a deal of good to live in Wall Street for a year
or two, and if Theodore Roosevelt could do the same, it would teach him
many things that he never would learn otherwise. As for President Taft,
I pity him so much that I wish him no experience except that of living
quietly at home.

But Higginson felt Wilson had a “very keen” intelligence, and voted
for him in 1912. Jacob H. Schiff, ordinarily a Republican, voted for
Wilson also, and donated heavily to his campaign. Charles R. Crane,
who had supported La Follette’s presidential campaign and followed
the Senator in his switch to Wilson, was the largest donor. Cleveland
H. Dodge, Bernard M. Baruch, Henry Morgen thau, and other impor-
tant financiers aided. Cyrus H. McCormick, Thomas D. Jones, and
David B. Jones of International Harvester also gave heavily. George
Harvey assisted with Wilson’s publicity in the final days of the cam-
paign, and Henry Seligman expressed what was probably the typical
opinion of ordinarily big business Republicans when he wrote that
“. . . I do not believe that [Wilson’s] election can do much
harm. . . .” 30

In 1912, American society and politics were at a critical impasse.

212

THE POLITICS OF 1912

Taft had shown how basically unstable the relationship between busi-
ness and government could be, and how the idiosyncracies of a man
or the political needs of a party could undermine the desire and need
for a stable, radonal, predictable business environment. Even more
important, by 1912 the competitive tendencies and the decentralizing
factors in industry and banking seemed ready to truly break out of
conventional bounds. New industries, new areas, new entrants — the
tendency appeared clear to all too many important businessmen. By
1912 big business was anxious for consolidation, a consolidation that
could not be obtained by another merger movement but only through
political means.

Wilson was attempting to generalize on the desirable relationship
of government to business, as was Roosevelt. These efforts were
superficial in their depth, and later capable of broad interpretation
by their originators. In the case of Wilson, the very vagueness and
lack of precision was, in itself, of the greatest consequence. For it
allowed others to add those crucial details that were to effectively
determine the operational nature of the New Freedom.

Others, besides Roosevelt and Wilson, tried to generalize on the
nature of the society they lived in, and the direction it should take.
To what extent were they more successful, both in their assumptions
and the clarity of their vision?

Robert M. La Follette critically evaluated the progressive move-
ment, and Roosevelt in particular, and there can be little doubt that
the Senator from Wisconsin was the most consistent contemporary
critic of the political acdons of his peers. Certainly only La Follette
has been spared the sort of comprehensive challenge to his reform
and liberal reputation that Roosevelt and Wilson have been exposed
to. It was La Follette who attacked Roosevelt for acting “upon the
maxim that half a loaf is better than no bread,” suggesting that “a
halfway measure never fairly tests the principle and may utterly dis-
credit it.” The Hepburn Act was such a measure, La Follette con-
cluded, and equally damaging to the cause of reform were Roosevelt’s
attacks on radicals and conservatives alike, and it was for this rea-
son that the Roosevelt Administration left no permanent record of
importance. 31

For all this, La Follette’s vision of the good society was never
articulated, and the very vagueness of his alternative to the traditional

213

Republican view has allowed the La Follette reputation to stand by
default. Yet it must be remembered that although La Follette fought
Taft and Roosevelt, he was also a foe of the Socialists, and in Wis-
consin the Socialists were a serious force to contend with. He was
able to criticize Roosevelt’s cooperation with the Morgan interests,
and the more obvious injustices of the period, but La Follette never
comprehended the direction or the mainstream of the relationship of
business to politics in this period. Issues were distinct to him, good or
evil, and not a part of a larger context of events. He took stands on
many separate problems, but he never integrated them into a larger
view of his times. Even at the end of 1911 he could praise the Bureau
of Corporations, the central pillar of the alliance between big business
and government, and he failed to probe very deeply into the opera-
tions of any single reform mechanism, save perhaps the I.C.C.

Yet La Follette spoke with indignation and passion for the cause
of the small farmers and businessmen. And it was this sense of in-
justice, and his role as the great critic, that carried with it the impres-
sion of genuine radicalism. In fact, however, he alone among con-
temporary political leaders spoke for the small businessman and for
true, unfettered competition. He felt, without proposing nationaliza-
tion, that the rigorous destruction of big business’ privileges would
allow more small property owners to emerge and the threat of social-
ism could be destroyed. Later he was wilting to work with the
Socialists, if only because they also took an antiwar stand and were
wilting to meet his political terms in 1924. Related to his advocacy
of the spread of small property was La Follette’s belief that the ap-
plication of efficiency principles to political administration would
lead to political rationality. Perhaps to a greater degree than any
contemporary political leader, it was La Follette who adopted the
cult of expertise, science, and rationality. As Governor he exploited
the combined talents of a great university, and let the political deci-
sion-making process increasingly fall into the hands of the presum-
ably positivistic academics. By relying on the talents of the
reform-minded professors at the University of Wisconsin, La Follette
deferred confronting political and economic realities and theories for
himself. Indeed, so long as he felt that difficult issues could be re-
solved by simple reference to experts, he was unable to call for tittle
more than clean, impartial, and fair government run by a competent
bureaucracy. He thus focused more and more on the formal political

214

THE POLITICS OF 1912

structure rather than on the political process in relation to the econ-
omy. The result was a brilliant career as a political critic, and a much
more prosaic role as an economic reformer and advocate of specific
economic changes. 32

American intellectual currents during the Progressive Era have
been exhaustively studied by others, and the sense of frustration anil
disillusionment on the part of the intellectuals, especially during and
after the World War, is a thoroughly analyzed phenomenon. Yet this
frustration was not due to a sense of discovery as to the true nature
of the progressive ferment, save possibly for a few of those who fol-
lowed Roosevelt’s political wanderings, and it is this failure to delve
into the roots of political frustration that resulted in the relatively
sterile response to the whole process of disillusionment. This inade-
quate response was the result of a fundamental conservatism on the
part of the large majority of contemporary intellectuals. With the
exception of Thorstein Veblen, not one major social theorist emerged
from the Progressive Era, if by “major” we mean one who pro-
foundly understood and described the times he lived in.

The conservatism of the contemporary intellectuals, and the fail-
ure of their powers of insight during their period of disillusion, is
quite explicable. The idealization of the state by Lester Ward,
Richard T. Ely, or Simon N. Patten, was the understandable reaction
to the Social Darwinism of Sumner and Fiske, for if the state could
be said to be the highest form of cooperative human evolution, or a
divine institution, then its actions could only be legitimized and de-
clared good. But the idealization of the state was also the result of
the peculiar training of many of the American academics of this
period. At the end of the nineteenth century the primary influence in
American academic social and economic theory was exerted by the
German universities. The Bismarckian idealization of the state, with
its centralized welfare functions designed to preserve capitalism and
the status quo in its more fundamental aspects, was suitably revised
by the thousands of key academics who studied in German universi-
ties in the 1880’s and 1890’s. A middle-class twist to the concept of
state welfare made it quite acceptable to many essentially conserva-
tive professors by the beginning of this century. The menace of
socialism could be met, Ely and John R. Commons felt, by recogniz-
ing and encouraging conservative unionism. Despite their unfortunate
experiences with academic freedom during a period when it meant
only the ability of students to choose their own electives, most of

215

these theorists were dedicated to preserving the essential legal and
economic prerogatives of the dominant economic classes.

Practically, the average liberal academic’s view of the state was
totalitarian as a consequence of his naivete. He was very rarely con-
cerned about formal, direct democratic control — this would have
meant the end of private property as then understood— and only
occasionally desired a balance of economic power that might have
seriously limited business. Axiomatic and simplistic assumptions as to
what might happen if some concrete legislation were enacted were
generally the rule. Conservative in their ends, as were big business
advocates of a far more extensive regulatory role for the federal
government, the academics who proposed economic reforms failed to
understand the process of political capitalism. Instead, the pressures
and leverage created by their ideas helped make political capitalism
possible.

The role of the intellectual as the reflection of the less formalized
needs of powerful interests is perhaps best illustrated by Herbert
Croly. Croly has become a favorite subject for American intellectual
historians of this period, and there is no point in rehashing all of his
ideas here. Suffice it to say that The Promise of American Life
(1909) was not merely a theoretical systematization of the New
Nationalism or Square Deal, although Croly took more of his pro-
grammatic ideas from Roosevelt than from anyone else, but a higher
stage of its development. At the same time that he maintained there
was an irreconcilable tension between the inevitable concentration of
economic power and the existing decentralization of political institu-
tions, and condemned the latter, he tried to make the “new meaning
to the Hamiltonian system of political ideas” he was advocating at-
tractive to labor as well. 33 In addition, however, to the recognition of
unions as the representatives of labor, and the inheritance tax, was
Croly’s nationalist conception that traded social welfare for the regu-
lation by the central government in commercial matters. Croly’s book
was fatally ambivalent on many of these matters, for, in the final
analysis, he defended the desirability of economic inequality of a
rather gross sort. And one is tempted to suspect that, given his eulogy
of the social services of Morgan, Carnegie, Hill, and Harriman, when
Croly advocated a new solidarity and attacked factions in society he
was really talking about a utopia led by an alliance of Wall Street
and Roosevelt.

Lest this analysis of Croly appear unfair, it should at least be

216

THE POLITICS OF 191?

observed that his next venture into social theory, a generous and
sympathetic biography of Mark Hanna published in 1912, indicated
an awareness of the functional political role of big business — a role
he could only rationalize. Willard Straight, a Morgan executive who
specialized in finding Morgan overseas outlets for investments, also
shared the above analysis of Croly when he placed him in the editor
ship of his weekly, The New Republic, in 1914. In Progressive
Democracy (1914) Croly exhibited a good deal more of his bureau
cratic positivism and conservatism than he had in his earlier works.
The Progressive Party alone stood for unequivocal change that recog-
nized the necessity of “inequality and injustice” in the economic
process as “the foundation of any really national and progressive
economic policy.” 34 Croly found the New Freedom’s reliance on
Jeffersonian doctrine — a reliance, as we shall see, that was more
verbal than genuine — a retreat to the past.

Croly reflected the dominant political attitudes of Theodore
Roosevelt, and this dependence made him incapable of viewing the
operational realities of the society he lived in with sufficient perspec-
tive to truly understand it. When he finally broke with Roosevelt he
passed through various phases of disillusion, having lost his source
of ideas and inspiration, and ultimately ended his career writing edi
torials in praise of Mussolini’s corporate state.

CHAPTER NINE □□□□□□□□□

WOODROW WILSON
AND THE
TRIUMPH OF
POLITICAL CAPITALISM:

BANKING

banking reform at the beginning of 1912 seemed a dead issue,
of interest only to a few bankers and the seriously divided National
Citizens’ League for Sound Banking. Despite the support of the
American Bankers Association for the Aldrich Bill, the inclusion of
the provision for total private control of the banking system managed
to lose the bill the support of President Taft. And Aldrich’s insistence
that his name be attached to the measure guaranteed the opposition
of the Democrats. The banking reform movement had neatly isolated
itself.

217

218

Writing a
Reform Bill

WILSON AND BANKING

The National Citizens’ League was a substantial organization, its
backers powerful and resourceful men. It was not at all evident to
them that their cause was lost, although it was to become obvious
that the politically flexible approach of Laughlin was increasingly
relevant to the changed circumstances. The tension between Laughlin
and the New York branch of the league, controlled by Paul M. War-
burg, was to persist, but at the beginning of 1912 the National
League unqualifiedly endorsed the Aldrich Bill. In the meantime,
despite a few suggestions by bankers that the Aldrich Bill be regarded
as less than sacred, the league continued to function as a large-scale
education and propaganda organization for banking reform. Its
periodical, Banking Reform, was in early 1912 supplemented by a
volume by the same name. Edited by Laughlin, the book became the
bible of the league, and a copy was sent to every member and dis-
tributed freely throughout the nation. Of the twenty-three chapters
dealing with all phases of banking problems, eleven were written by
Laughlin’s former student, H. Parker Willis, who received $1,000
for his labors. Although avoiding Aldrich by name, the volume never-
theless endorsed the basic principles of his bill.

But the publication of a book rarely, if ever, led to the creation of
a serious reform movement, and were it not for a set of fortuitous
events, it is likely that the banking reform movement would have died
an early death. The first, and perhaps most crucial accident, was the
fact that H. Parker Willis, with whom Laughlin maintained continu-
ous, intimate communication, taught economics at Washington and
Lee University until 1905, as well as serving as the Washington cor-
respondent of the New York Journal of Commerce and freelancing
for Laughlin. In one of his classes he had taught the two sons of
Carter Glass of Virginia, the ranking member of the Committee on
Banking and Currency of the House of Representatives. Now, in
early 1912, Glass was looking for an administrative assistant, and his
sons recommended their old teacher to him. 1

Carter Glass had virtually no technical knowledge of banking
and needed an administrative assistant rather badly. As Glass himself
put it:

219

He had no special qualification for the work beyond the information
absorbed in these [ten] years of discussion and a reasonable amount of
common sense acquired as a practical printer and successful newspaper
publisher, supplemented by an observant service in Congress. 2

Basically conservative, Glass had the confidence of Democratic House
leader Oscar W. Underwood, who lined up behind Glass against the
efforts of Arsene P. Pujo and his ambitious attorney, Samuel Unter-
myer, to assign the problem of banking reform to the Pujo Subcom-
mittee on the “Money Trust.” The House Committee on Banking
was split into two subcommittees, and Glass was given the respon-
sibility of considering banking reform. Totally unprepared, he hired
Willis and first assigned him the tedious and harmless task of prepar-
ing a memo on the existing reform plans.

The Democratic Party had no special interest in banking reform,
and although its 1912 platform specifically opposed the Aldrich Bill,
it was extraordinarily vague as to its concrete alternatives. Certainly
the seniority system of the House Committee on Banking, the per-
sonal ambition of Glass, and the learned summary by Willis were
inadequate to fill the vacuum. Still, Willis’ obtaining of his crucial
role was a fortunate turn for the banking reform movement. Through-
out the spring of 1912 Willis wrote Laughlin about his work for the
Glass Committee, his relationship to his superior, and Washington
gossip. The advice of the old professor was much revered. “. . . when
you arrive,” he wrote Laughlin concerning a memorandum he had
written, “I should like to show it to you for such criticisms as occur
to you.” 3 The student-teacher relationship between the two men was
still prominent.

This relationship between Willis and Laughlin is of great
consequence to the subsequent history of banking reform, since it
buttressed their virtually identical ideological and technical commit-
ments. In June, 1912, Willis reported to Laughlin that “After a good
deal of talk with Mr. Glass, I drew up a bill along the lines of which
you and I spoke, and turned it into him.” 4 But Glass had his re-
election to worry about and thought nothing could be done that
session, and instructed his expert to busy himself over the summer
by working on a bill. At about the same time, both Willis and Laugh-
lin concluded that the Aldrich Bill was politically impossible to pass,
if only because the split in the Republican Party made a Democratic

220

WILSON AND BANKING

victory appear inevitable. During May and June, 1912, Laughlin
traveled through the South, visiting conservative Democrats and
arousing their interest in banking reform. Of special importance was
Representative Oscar W. Underwood, House Democratic leader, who
responded to his suggestions enthusiastically but was to lose control
of the committee on resolutions at the Democratic convention to
the Bryan forces. Laughlin and the league, at the same time, found
it possible to praise the platform of both major parties as favoring
monetary reform, even though they could not help but point out that
the Democrats were more notable for what they opposed than for
what they supported.

If it had to depend on Willis, Glass, and Laughlin, banking re-
form as a cause would have died quickly enough. Fortunately for the
reformers, the Pujo Committee swung into high gear in its investiga-
tion of the Money Trust during the summer of 1912, and for eight
months frightened the nation with its awesome, if inconclusive,
statistics on the power of Wall Street over the nation’s economy. The
Pujo investigadon was to be a blessing in disguise. Five banking
firms, the elaborate tables of the committee showed, held 341 direc-
torships in 1 1 2 corporations with an aggregate capitalization of over
$22 billion. The evidence seemed conclusive, and the nation was
suitably frightened into realizing that reform of the banking system
was urgent — presumably to bring Wall Street under control. The in-
quiry was directed by Samuel Untermyer, an opportunistic and
ambitious attorney who only the prior November was saying “The
fact is that the monopolies and substantial domination of industries
created in that form could be counted on the fingers of your hands,”
attacking “the political partisans who seek to make personal and
Party capital out of demagogic appeals to the unthinking. . . ,” 5

The ogre of Wall Street was resurrected by the newspapers, who
quite ignored the fact that the biggest advocates of banking reform
were the bankers themselves, bankers with a somewhat different view
of the problem of concentration in banking and in fear of the very
real trend toward instability and decentralization in finance. Yet it
was largely the Pujo hearings that made the topic of banking reform
a serious one. And, fortunately for the bankers, responsibility for
formulating reform measures was not under the jurisdiction of Pujo
but of Glass. And Willis, for all practical purposes, ran the Glass
Committee.

221

The Pujo inquiry opened up new dangers, and new promises as
well. Laughlin, as early as May, 1912, had indicated his personal
opposition to the control provisions of the Aldrich Bill. Now, in July,
Willis wrote in the Journal of Commerce that if conservative banking
reformers could not unite behind a reasonable substitute for the
Aldrich Bill, which was now politically dead, the threat of legislation
from the Bryan Democrats was real indeed. “In such a case it would
be impossible to look for any conservatism.” 6 Indeed, Pujo and Unter-
myer were to try again during the summer to win the legislative
powers from the Glass Committee, and illustrated the truth of Willis’
warning.

During July Willis continued to work on a draft of a bill, sending
a copy to Laughlin for his comments. When the master failed to
reply, the former student wrote he was “a little anxious” whether it
arrived. At the same time, he tried to swing Laughlin to the com-
promise position Laughlin had shown signs of moving toward in
May.

Yet I cannot help recognizing that an incomplete bill is all that can be
had and that it is much better to take half a loaf rather than to be abso-
lutely deprived of the chance of getting any bread whatever. ... If the
present condition of disunion and disagreement . . . continues, nothing
will be done and the whole plan will fall flat. Indeed it may do worse than
that for the so-called “progressive” element — such as Lindbergh and his
supporter’s — will be encouraged to enact dangerous legislation against
Clearing Houses, etc . 7

The league, Willis urged, should endorse any bill that carried reform
further.

Laughlin clearly accepted Willis’ argument, and needed no prod-
ding. The New York league, barely able to contain itself, was in-
furiated when Banking Reform in September endorsed the principles
of currency elasticity and centralization in any form, and by the
journal’s insistence on playing down the Aldrich Bill and maintaining
that currency reform was a nonpartisan issue. As New York con-
sidered secession from the league, and tried to have Laughlin fired,
Willis reassured him that “as a personal friend and loyal believer in
your work,” he would support him against his league opponents. To
solidify his position, Laughlin had the state presidents of the league
meet at the end of October to withdraw the league’s exclusive support
for the Aldrich Bill. Each of the three major platforms were inter-

222

WILSON AND BANKINw

preted so as to allow for adequate banking reform and the non
partisan status of the league was reiterated. Only the prior monlli
the executive committee and the currency commission of the Anim
can Bankers Association had withdrawn its specific endorsemenl <>l
the Aldrich Bill in order to give itself freedom to push for the lu-M
possible bill, working under the aegis of the league. Now, Laughlin
was free to formally take the same position and to end internecine
disputes within the league. “It is progress that the Aldrich plan cann
and went,” Banking Reform announced. “It is progress that the
people have been aroused and interested.” 8

Laughlin and the league were now free to “try to help in getting,
a proper bill adopted by the Democrats,” a bill that “In non-essential.

. . . could be made different from the old plan,” and could be passed
if the league, the American Bankers Association, and the Chambci
of Commerce united behind it. The victory of Wilson made it pos
sible to “hope that the changed administration will be more alive lo
the commercial necessities of the country than the expiring one,” as
A. Barton Hepburn put it. Fortunately, the new President admitted
“he knew nothing” about banking theory or practice. 9 Glass madi
the same confession to Colonel House in November, and this vacuum
is of the utmost significance. The entire banking reform movement,
at all crucial stages, was centralized in the hands of a few men who
for years were linked, ideologically and personally, with one another
The problem of the origin of the Federal Reserve Act, and tin
authorship of specific drafts, was later hotly debated by H. Parker
Willis, Carter Glass, Paul M. Warburg, and J. Laurence Laughlin,
who greatly exaggerated their differences in order that they might
each claim responsibility for the guiding lines of the Federal Reserve
System. Yet all of these men were conservative by any criterion, and
although they may have differed on details, they agreed on major
policy lines and general theory. The confusion over the precise
authorship of the Federal Reserve Act should not obscure the fact
that the major function, inspiration, and direction of the measure was
to serve the banking community in general, and large bankers
specifically.

The exegetic problem of who wrote the Federal Reserve Bill still
remains, however. A final solution may not be possible, but certain
crucial facts can be isolated. Throughout November and December,
1912, Laughlin and Willis were in constant communication as the first

223

draft of a complete bill was finally written. Moreover, Laughlin,
Colonel House, and Glass were to frequently consult with major
bankers about reform, and provided an important and continuous
bridge for their ideas while bills were being drafted.

On November 14 Laughlin and Glass met to discuss legislation,
and Laughlin later claimed he was asked to prepare a bill. As Laugh-
lin told Willis the following week:

Then it was agreed that as soon as I could complete the draft that we
should have a private meeting somewhere unknown to the newspaper
reporters, and go over the bill thoroughly from beginning to end. . . .
Therefore, I shall go to work immediately to draft a bill embodying the
general principles of the one I showed you, and try to adjust the ma-
chinery so that it might not be antagonized as a central bank. ... I have
little doubt that we shall have legislation in the spring session. What that
measure will be depends largely upon what you and I can devise. 10

The extent of centralization was to depend on President Wilson, but
Laughlin was confident the problem could be taken care of
adequately.

Willis responded in a friendly manner to Laughlin’s efforts, al-
though in early December he may have had second thoughts when he
tried putting off a meeting with Laughlin for nearly a month. Laugh-
lin, in any event, worked with the approval and advice of A. Barton
Hepburn, James B. Forgan, and George Reynolds, who were kept
informed of his efforts.

Laughlin prepared three drafts of a bill during the month of
December, and sent each along to Willis. Plan A arrived at the be-
ginning of December, and although Willis was courteous to his old
professor, he sent it along to Glass with the comment, “It does not
impress me very strongly.” It was understood that an improved plan
would follow the first one, and Willis hinted to Laughlin that what-
ever Glass “reports will be in fact the result of his own work and
analysis,” which was to say, Willis’ work and analysis. The third draft
— “Plan D” — arrived in Washington on December 22, and Willis
thought it “decidedly better than the last and has much to commend
it.” 11 Several days later Glass was sent the draft.

The crux of Plan D was dominant public control of the central
Treasury Board. Ten of its thirty-one members were to be chosen by
banks, eight were to be appointed by the President, and the Secretary
of the Treasury and the Comptroller were to automatically sit on the

224

WILSON AND BANKING

board. The balanced board was to choose another ten from lists sub-
mitted by representatives of agriculture, labor, and commerce, and the
group of 30 was to choose a president. This board was to coordinate
the entire banking system belonging to the districts. Plan D provided
for an indeterminate number of district associadons, whose capital
stock was to be owned by member banks, to be chartered by the
Secretary of the Treasury, the Comptroller of the Currency, and the
Attorney General, who could also fix the interest rates of the associa-
tion. Laughlin never claimed that the details of Plan D were em-
bodied in the final Federal Reserve Act, but he did claim that it
embodied the fundamentals. 12

Various sections of Plan D consisted of extracts from the Aldrich
Plan, even though these were limited to the parts dealing with the
redeemability of Treasury Board notes by the districts in gold, the
foreign branch banking provisions, and the conditions for invest-
ments. On December 26 Wilson met with Glass and Willis to discuss
banking legislation and to consider Willis’ draft outline. The distinc-
tion between the Willis and Laughlin proposals is on points of
emphasis rather than in the basic approach. The basic features of die
Glass draft were, in Glass’ words:

( 1 ) organization of a certain number of regional reserve banks of speci-
fied capital, with a view 1 to decentralizing credits; (2) a compulsory
withdrawal of reserve balances as then impounded and their transfer to
these regional reserve banks; (3) compulsory stockholding membership
of national banks . . . ; (4) associate membership of state banks with
limited priviliges; (5) the rediscounting processes common to such plans;
(6) the issuance by tiie regional banks of federal reserve notes, based
on a gold and liquid paper cover; (7) the gradual retirement of national
bank bond-secured notes; (8) the joint liability of all the regional banks. 13

The number of district associations was left indeterminate, and the
principle of a central board in Washington to replace the Comptroller
as supervisor was suggested by the President’s urgings that such a “cap-
stone” be placed on the structure. By the end of December, as Colonel
House assured Paul Warburg, “the President-elect thought straight
concerning the issue.” 14 But everyone else was thinking straight as
well.

Wilson’s proposal to replace the supervisory power of the Comp-
troller with a central board made Glass speculate “that Mr. Wilson
has been written to and talked to by those who are seeking to mask

225

the Aldrich plan and give us dangerous centralization,” but his im-
mediate interpretation of the President-elect’s orders, which he de-
cided to accept, was much more to the liking of bankers than was
required. Throughout the end of 1912, and during the first few
months of 1913, Wilson and his intimates had ample opportunity to
discuss banking reform with major bankers. E. D. Hulbert, the anti-
Aldrich Chicago banker, and A. Barton Hepburn of the Chase
National Bank, had direct links with the President and his advisers.
Paul M. Warburg saw Secretary of the Treasury William G. McAdoo,
Henry Morgenthau, and others during this period, and at Morgen-
thau’s request he prepared a bill compatible with the Democratic
platform. Laughlin, apparently unaware of the substance of Willis
and Glass’ December 26 meeting with Wilson, had more proposals
to make — “Like Wilson he seems to want an additional centralizing
mechanism of some kind but apparently is willing to reduce its scope
a good deal,” Willis reported to Glass. In early January Laughlin
came to Washington, and Willis told Glass, “I think I had better go
over his plan with him fairly carefully in order to see just what he has
in mind in detail.” 15

Wilson’s request, and the opinions of key bankers, meant that
Glass and Willis had to be most flexible in working on their draft of a
bill. Although they were careful to keep the contents of their work
confidential, to aid the passage of any bill that might be agreed upon
Glass deemed it desirable to hold public hearings on the topic and to
make sure the course of these hearings was not left to chance. Willis
visited Hepburn and Warburg and they were most cooperative, and
Hepburn agreed to talk about banking ideas rather than plans. “This
ought to mean that we can get a good deal out of him along lines that
will be helpful in drafting our bill. Mr. Warburg takes the same view
and I think wants to be as helpful as he can. . . ,” Willis reported. The
public assumption of the hearings was that no bills had been drafted,
and Willis’ draft was never mentioned, much less revealed. Laughlin
also agreed to cooperate with this procedure. “. . . my appearance
before the committee was largely pro forma,” Laughlin later wrote;
“what I said at the hearings did not represent what I had already
laid before them.” 19

The hearings of Glass’ subcommittee in January and February,
1913, were nothing less than a love feast. A. Barton Hepburn started
by assuring the Congressmen that the American Bankers Association

226

WILSON AND BANKING

would cooperate on “any good measure” that led to elasticity and
cooperation in money reserve management. Regional banking would
be far better than it was at present, he assured them, if it allowed for
an elastic currency based on commercial paper and a bank associa-
tion that “should be the dominant power in all commercial finance.”
He was followed by Warburg, who assured the subcommittee that the
Aldrich Plan was one way, but not the only one, to solve the banking
problem. . . you will find that you will come toward a centralized
reserve system in some form,” he predicted, even by following Mora-
wetz’ regional reserve plan. Indicating support for a centralized re-
serve system, as opposed to a central operating bank, only that month
Warburg had submitted a confidential bill to Morgenthau that pro-
vided for four regional banks and a central issuing department and
board of regents in Washington under ultimate government control . 17

Festus J. Wade, St. Louis banker and member of the currency
committee of the A.B.A., announced that “this association will co-
operate with any and all people in devising a financial system for this
country,” even though he personally favored the Aldrich Bill. “. . . any
bill you submit will be a vast improvement on our present system,”
and even if it were called “central supervisory control” rather than a
“central bank,” “It will be a central bank in its final analysis.”
George M. Reynolds joined the friendly chorus, confessing he had
been opposed to a central bank for years, favoring only “some cen-
tral overseeing or controlling board with common ownership of
assets. By which I mean an organization with branches located in
various section of the country, dealing only with banks and the
Government.” Any legislation in this direction, Reynolds declared,
“will materially improve present conditions.” “. . . you can count on
at least good treatment and a reasonable measure of cooperation by
the American Bankers’ Association,” he assured them . 18

Many other bankers followed the leaders of the field, and most
echoed their friendliness theme and offered a few conservative sug-
gestions, but more tangible evidence of support was given beh in d
closed doors. Festus Wade, Hepburn, and other major bankers met
after testifying and decided to support a regional reserve plan —
indeed, the Aldrich Bill was such a plan — and to improve it if neces-
sary and possible, with special attention to the control mechanism.
The currency commission of the American Bankers Association was
also to be lined up, and the strong central bank advocates, such as

227

Forgan of Chicago, were to be brought under control in order to
ease the modification of the A.B.A. position. Glass immediately saw
the value of such assistance. “What I most earnestly desire to do,” he
wrote Wade, “is to aid in the construction of a measure of reform
that will commend itself for soundness to the bankers of the country
and, at the same time, secure the support of the business community
for its fairness and sufficiency.” 19 Wilson was given a copy of the
draft bill on January 30, and it is likely that Laughlin was allowed to
see a copy, or at least told of crucial details, not too long thereafter.
Laughlin’s contact with the subsequent drafts was purely minimal
after the hearings, however, although he frequently communicated
with Willis. The general plan, league members were publicly told at
the beginning of February, would provide for regional banks with
over-all central control.

The first draft of the Glass Bill given to Wilson on January 30
was very much like the one shown to him the prior December. It
provided for a minimum of fifteen regional banks, the control of each
being left largely in the hands of bankers representing various classes
of banks. The important innovation was a Federal Reserve Commis-
sion in Washington to supervise the national system. Three of the
commissioners were to be elected by the regional banks, and three
were to be nominated by the President and confirmed by the Senate.
The Secretary of the Treasury, the Secretary of Agriculture, and the
Comptroller were also automatically members, giving the political
appointees a majority. 20

Glass tried to carry on his work quietly, but pressure for action
was built up by various bankers and businessmen, and by attacks on
the Money Trust by the Pujo Committee. The National Association
of Credit Men sent sympathetic letters to Wilson throughout Febru-
ary and March, calling in general terms for currency legislation. Henry
Lee Higginson, an old Wilson supporter, argued for regional banking
centers with central control in his letters to the President. Colonel
House, in addition, was talked to by Frick, Otto Kahn, and others in
late February, and the following month also met Vanderlip, J. P.
Morgan, Jr., and other bankers to discuss currency reform. The
Morgan position was clear and public: what was necessary was com-
prehensive and thorough legislation on banking. Aiding this nearly
universal sentiment among bankers was the Pujo hearings, for, as the
Wall Street Journal admitted on March 7, “the fact that public inter-

228

WILSON AND BANKING

est is aroused will, it is believed here, lead to early action by congress
by which legislation tending to perfect or reform our banking and
currency system may be adopted.”

To make sure the reform was more to the liking of bankers, a
steady barrage of personal, unobstnisive communications with Glass,
House, and Wilson was kept up throughout February and March. 21

The Bankers and
the Glass Bill

Wilson’s Inaugural Address included a passing reference to the
inadequacy of the banking system, for which bankers were grateful.
Despite the beginnings of slight signs of impatience on the part of
Laughlin, the league was fulsome in its praise of Glass, and bankers
felt greater and greater confidence as Colonel House began visiting
Glass and showing interest in his currency measure. This sense of
participation was undoubtedly aided by the fact that sometime in
February or early March A. Barton Hepburn was called in by Glass
to discuss, according to Willis, the banking community’s concept of
desirable reform. Although the true nature of the conversation can
never be known, and Willis’ account is inconsistent or implausible on
its face value, there is no question that during early April the legisla-
tive committee of the A.B.A. met with Glass and Willis and ‘‘the
main outlines of the bill, so far as then developed, were stated to
them.” 22 Shortly thereafter, sometime in mid-April, Colonel House
passed a very detailed outline of the bill to W'arburg, and before long
it was circulating among the key bankers.

Strangely enough, on April 1 Laughlin stepped down from the
leadership of the National Citizens’ League, claiming that it had suc-
ceeded in its goal. He was thoroughly convinced that the Glass Bill
would be based, in most of its important details, on his own “Plan
D.” The plan had been circulated among key league members, and on
the assumption that Laughlin was correct, prominent officers of the
organization were convinced “we ought to do all we can to have the
Glass bill introduced at the special session. . . .” Paul M. Warburg,
on the other hand, was less pleased, and on April 22 sent House a
criticism of the outline of the Glass Bill that took point mainly with

229

technical issues. Fifteen or twenty regional banks were not deemed
too many over the long run, although Warburg preferred three to
live. A number of specific details were questioned, but, according to
his own claim, many of Warburg’s objections were later met in subse-
quent revisions. 23

Despite occasional complaints, which are too easily confused with
serious opposition, the important bankers regarded the Glass plan
favorably and looked forward to its passage. A perfect bill was not
expected, George Reynolds told Glass, but something “in the right
direction” would solve many problems. Regional banks controlled
by a Treasury Board with note issuing functions would give elasticity
in credit and note issues. “. . . I shall be only too glad to do what I
can to assist in securing for you and your plans the cooperation of
the bankers of the country as well as the American Bankers Associa-
tion. . . .” Glass was soon to appreciate the importance of having the
sympathy of the banking community. Colonel House was still very
much interested in banking reform, as was Secretary of the Treasury
McAdoo. In March, House was suggesting “that McAdoo and I whip
the Glass measure into final shape ...” in order to make the bill
acceptable to the chairman of the Senate Committee on Banking,
Robert L. Owen. 24 Samuel Untermyer, the ambitious attorney of the
Pujo Committee, had been anxious to get jurisdiction over banking
legislation for well over a year, and probably prodded by Untermyer,
in mid-May McAdoo proposed a National Reserve Bank with far
greater centralization than provided for in the Glass Bill; the proposal
thoroughly frightened the bankers. By this time Glass had mobilized
the major bankers behind him, and it was clear that only his plan
would be acceptable to them. In mid-May, before McAdoo proposed
his measure. Glass arranged a confidential meeting with major
bankers to go over his bill. “. . . the bankers were swinging around
into support of something like what we have been working on . . . ,”
Willis could report to his superior. At the same time, although
Laughlin was not given precise details of revisions, Willis kept him
informed of general progress. 25

The crisis over the McAdoo Plan was to end in defeat for Mc-
Adoo on June 9 largely because the bankers stood behind Glass.
Reynolds, Forgan, and Hepburn were especially important in coming
to Glass’ defense, and to their own as well. As they became more
important as his allies, Glass sought their advice on technical aspects

230

WILSON AND BANKING

of his plan, and deepened the channels of communication that already
existed. McAdoo, who was quite as conservative as Glass, and who
perhaps was talked out of his plan by Reynolds and Forgan, only
served to drive the bankers into Glass’ arms. “. . . I am decidedly in
favor of your plan,” Reynolds assured Glass. Untermyer, who prob-
ably fathered the entire plot, irately suggested to Owen, Wilson, and
McAdoo that the issue of banking reform be dropped entirely. 26

In his next crisis, however, Glass was to be less successful than
he had been with McAdoo. During most of his early work on a bill
he had slighted Senator Owen. Not until June, 1913, was Glass ele-
vated to the chairmanship of his committee — which he controlled
rather completely — and Owen rankled at the relatively junior Con-
gressman's brash ignoring of him. “The chief point of danger now
seems to be the apparent intractability of our friend Senator Owen,"
Glass reported to Hepburn in early June. After Glass deigned to meet
with Owen shortly thereafter, the Senator became more conciliatory
and backed away from his probably vindictive support for the Mc-
Adoo plan. Owen was not prone to radicalism, for a decade as a
bank president had made him amply conscious of the needs of the
banking system. 27

Nevertheless, Owen and Glass disagreed on two major points,
and Wilson and his advisers were soon involved in the dispute. Owen
insisted that the government choose all of the fifteen directors now
proposed in the Glass Bill, and that control over the regional money
supply be taken out of the hands of the regional banks. The first
point was one of degree rather than of kind, since two-thirds of the
board was to be “political” anyway. The second point called for in-
creased centralization, but also for the removal of crucial power from
the hands of non-political regional bankers. The Owen-Bryan wing
of the Democratic Party wished the notes issued by the Reserve Board
to be the obligation of the United States Government. Neither of
these positions, in this writer’s opinion, reflects any fundamental dis-
agreements within the ranks of the Democratic Party, nor did they
basically reduce the attraction of the Glass Bill to the majority of
important bankers. Surely the regionalism of the Glass Bill was
hardly more significant than that in the Aldrich Bill in establishing
some decentralized control over the banking system, much less in
breaking the power of the “Money Trust.” Whether the bankers
would be able to sit on the Federal Reserve Board did not change the

231

larger functions of that board, and the functions were most em-
phatically approved of by the big bankers.

On June 17 Glass, McAdoo, and Owen were called to the White
House and the Owen amendments to the Glass Bill were discussed.
Glass strongly opposed the proposal, and argued for banker repre-
sentation. The question was not decided that day, however, and the
debate was allowed to rage while Wilson finally made up his mind.
“. . . it would prove an almost irretrievable mistake to leave the
banks without representation on the Central Board,” Glass wrote
Wilson on June 18. Perhaps, as McAdoo had suggested, the Presi-
dent might agree to pick the banker representation from lists sub-
mitted by bankers.

Glass did not give up on the right of the bankers to some board
representation, and he was encouraged by Hepburn to keep up the
struggle: “The cause is worthy of a good fight, and I have great hopes
that you will measurably, if not wholly, succeed.” In the meantime,
Hepburn promised, the A.B.A.’s currency commission would be
“contending for the currency principles upon which your measure is
predicated.” Wilson, during the same period, took tangible steps to
make sure banking legislation would be seriously considered by Con-
gress. Appearing before a joint session on June 23 “to urge action
now,” the President based his appeal on the need to increase business
opportunity: “It is absolutely imperative that we should give the
businessmen of this country a banking and currency system by means
of which they can make use of the freedom of enterprise and of
individual initiative which we are about to bestow upon them.” 28 The
speech hit a responsive chord among businessmen and bankers, and
numerous letters and telegrams of congratulation were received in the
White House.

The following day Wilson, Glass, Owen, and McAdoo met with
Reynolds, Wade, Sol Wexler of New Orleans, and other representa-
tives of the bankers to discuss the Glass Bill — which had been form-
ally released to the public on June 20. Several important concessions
were made to the bankers on the retirement of national bank notes
and the control of regional discount rates. It is possible that addi-
tional compromises were made, since Reynolds later complained of
government failures to comply with their agreement. But the major
desire of the bankers was representation on the Federal Reserve
Board. The conventional interpretation has it that Wilson parried this

232

WILSON AND BANKING

demand by asking : “Will one of you gentlemen tell me in what civil-
ized country of the earth there are important government boards of
control on which private interests are represented?” Unfortunately
for them, as Warburg later commented, the bankers failed to point to
England and Germany. Moreover, Carter Glass, the originator of the
story, also failed to point out that the subsequent sop given to the
bankers, a Federal Advisory Council of bankers and businessmen,
was suggested in essence by V. Sidney Rothschild, a New York
banker, on June 24. It was first proposed to Wilson, however, by
Brandeis on June 14. 29 Moreover, at least two of the five appointed
board members were required to have banking backgrounds.

The important bankers responded to this new situation with
mixed feelings, and it would be easy to confuse specific complaints
with general disagreement. After meeting with Wilson on June 24,
Sol Wexler and George Reynolds, speaking for the major bankers,
demanded several concessions on the bond refunding and bank re-
serve provisions of the bill. Also requested was a Federal Advisory
Council, such as had already been agreed upon by Wilson. Glass re-
acted favorably to these demands, as he had to their earlier pleas, but
was irked by the response of the bankers to the concessions after they
were made. Wexler and Reynolds, Glass claimed, had promised to
get the currency commission of the A.B.A. to endorse his bill “with
enthusiasm” in return for his concessions. Now having made them,
according to his view, he was distressed when Reynolds wrote him
on June 30 and told Glass that he would not oppose the bill but
would come out against “some of its provisions.” 30 Glass was hurt,
and immediately wrote Festus J. Wade:

Having made many of the changes suggested by you and your associates,
I think the bill as it now stands is both “sound and wise” and should re-
ceive the support of men of your type.

It is difficult to know whether Reynolds and the big bankers were
trying to exact greater compromises from Glass or whether they were
correct in claiming he failed to conform to their verbal understanding
of June 25. Reynolds, on July 7, wrote Glass a letter indicating his
qualified support of the bill, support he had always given:

I am not hostile to and do not intend to be hostile to the whole bill; on
the other hand I hope that the bill may be passed, but I want to see it

233

modified to the extent the banks will have representation on the Federal
Reserve Board, or that there will be an Advisory Committee, and I want
to see a modification made in the reserve requirements along the lines
our Committee recommended. . . , 31

During the first part of July it became increasingly apparent that
the larger part of the banking community would support the Glass
Bill. The Chicago Banker reported on a survey of bankers in forty-
two smaller Western and Southern cities, and found that bankers in
twenty-two cities favored the bill in general while those in ten were
opposed and ten were divided. The Northwest was favorable toward
the bill on the whole, and the North, Central, and Midwestern states
were largely unfavorable. Assuming the survey was fairly accurate,
the important question was the nature of the opinion toward the bill
among the big bankers and important journals.

“It can be easily criticized as to several of its provisions,” the
Banking Law Journal editorialized. “But in our opinion, if this bill
be passed even in its present shape, when put in operation, it will
bring about monetary conditions, far in advance of any that have
existed in this country since the liquidation of the First Bank of the
United States. ... It is absolutely certain that the principle of central
control, forming the basis of the Currency Bill is right. Many of its
details may not be properly worked out. Experience alone can show
what is superfluous and what is lacking. If Congress waits for a perfect
bill which will meet every criticism and every cavil, it will never act
effectually .” 32

The Bankers Magazine, which had been against the Aldrich Bill,
granted the Glass Bill had some valuable assets, but strongly opposed
it in August. A number of important expressions of support were re-
ceived, however. Byron L. Smith, president of the Northern Trust
Company of Chicago, told Glass his bill met with his “cordial ap-
proval,” and was the sort of measure bankers had always clamored
for. Josiah Quincy, former mayor of Boston and an insider in the
city’s elite, told Tumulty that Colonel William A. Gaston, an impor-
tant Boston banker, had discussed the bill with many large bankers
and that differences were friendly rather than irreconcilable. “Funda-
mentally I believe the proposed bill to be a good one,” Samuel Lud-
low, Jr. of the Union Trust Company of Jersey City, let Tumulty
know, even though he wished banker representation on the Federal
Reserve Board . 33

234

WILSON AND BANKING

The big bankers’ policy of coyness in the hope of gaining conces-
sions was disturbed by more ominous rumblings from Western radi-
cals in Congress. Even more alarming, these Congressmen included
members of Glass’ Committee on Banking. Led by Representatives
Robert L. Henry and Joe H. Eagle of Texas, these men attacked the
Glass Bill as being virtually identical to the Aldrich Bill in its basic
principles. The banks, Eagle claimed, were “to be guaranteed against
loss by the establishment of a paternalistic relationship or private
partnership with the government.” The key objective of the dissident
faction was to include an amendment to the bill forbidding inter-
locking directorates among bankers. The eventual result could have
been predicted, given Wilson’s readiness to back Glass to the hilt
with special conferences, political pressures, and the usual means
available to a determined President who also controls the party and
appointments. By promising the inclusion of such an amendment in
any future antitrust bill, and by having Bryan strongly endorse the
existing Glass Bill, Wilson was able to defeat the radicals while Bryan
was proclaiming the measure a people’s victory. Although the Glass
Bill was to eventually pass the House on September 18 by a vote of
287 to 85, the possibility of much more radical alternatives to the
Glass Bill was broadcast to the banking and business community in
dramatic fashion. 34 During the midst of the controversy with the
Westerners, Glass wrote Festus Wade and other key bankers to re-
mind them of the option to his bill. “. . . unless the conservative
bankers of the country are willing to yield something and get behind
the bill ... we shall get legislation very much less to be desired, or
have nothing done at all.” Certainly if one takes on their face value
the histories of the bill subsequently written by Glass and Willis, the
position of the banking community appears as one of intractable
opposition. If one reads the contemporary financial and business
journals, accounts of bankers meetings, and the usual historical raw
materials, a much more complicated image of divisions, manuevering,
and subtleties emerges. Neither picture, in the final analysis, is a cor-
rect one, although the second one is obviously preferable. What can-
not be measured is the large-scale indifference of the vast majority of
small bankers and businessmen and the extent to which the debate
within the banking community was concentrated among a relatively
few men. The president of the Massachusetts Bankers Association
sent three hundred bankeis in his state an inquiry concerning their

235

opinion on the bill, and received fourteen replies. Henry P. Lason of
DeFuniak Springs, Florida, was able to have more signatures sent to
the Senate Committee on Banking and Currency in support of his
funny-money plan than could either side of the Glass Bill for their
positions. 35

Still, the available records indicate that the banking community
was virtually unanimous in its belief in the need for banking reform,
however much it disagreed on specific means, and this fact was
eventually to have the greatest significance. In the meantime, the
bankers lined up on the issue of how to treat the Glass Bill. The
large majority accepted the premises of the Glass Bill and sought to
work within them, and it is here that the only significant division
occurred. The large majority of the important bankers concerned
about banking legislation refused to unqualifiedly endorse the bill, yet
they strenuously condemned those who advocated opposing it. The
goal was to obtain the best measure possible — but to get a measure.

Communications between Glass, Owen, and various bankers con-
tinued throughout July and August. But the resolution of the Wyom-
ing Bankers Association favoring the Glass Bill with an amendment
to allow for banker control, and the letter of the Richmond banker
who suggested “we willingly waive all minor changes, rather than
have no bill passed at this session,” were relatively unimportant. Of
much greater consequence were Vanderlip, Reynolds, Hepburn,
Forgan, and bankers of their stature. On August 22 and 23 the
leaders of the American Bankers Association met in Chicago to try
to hammer out a common position on the Glass Bill. James B. For-
gan led the fight for total opposition to the bill, and his stand was
defeated by a large majority of the delegates. George M. Reynolds
and A. Barton Hepburn, on the other hand, were able to convince
the gathering to endorse specific amendments to the Glass Bill rather
than oppose it. After all, as Hepburn put it:

The measure recognizes and adopts the principles of a central bank. In-
deed, if it works out as the sponsors of the law hope, it will make all
incorporated banks together joint owners of a central dominating power.
Why, then, should not the principle, once recognized, be correctly ap-
plied?

To satisfy the Forgan faction, and perhaps to leave room for com-
promise, the amendments called for were sweeping in scope, making

236

WILSON AND BANKING

4

iii

ii

*

,'i 1 ! national bank participation voluntary, limiting Federal Reserve

Board power in the regions, and in general decentralizing banking
rather than attaining the much desired centralization. The amend-
ments were largely intended as a maneuver, and the details of the
'i position were sent along to Congress but not strictly adhered to in the

ijlj subsequent banker agitation. 36

1 j While the organized big bankers assumed a hostile position to-

j ward the Glass Bill, gestures of important conservative support from

other directions began coming in. Robert H. Treman, president of the
New York Bankers Association, assured Glass that “Personally I am
in sympathy with the Bill in general . . . ,” and he wanted only a few
changes. Other indications of support from bankers also trickled in
during the end of August and the beginning of September, and Glass
was surely cognizant of the fact that only a handful of protests
j against his bill arrived throughout 1913. The significant assistance,

j j however, was to come from businessmen’s groups and, appropriately

1; enough, the National Citizens’ League.

Laughlin had resigned from fulltime work with the league, but he
remained as chairman of the executive committee while James V.
ii; Farwell, a Chicago businessman, ran the affairs of the organization.

The league took pride in its influence on the issue of banking legisla-
tion, and at the beginning of July publicly proclaimed the Glass Bill
as a good start only requiring several changes. Privately, the league’s
key executives were much more pleased with the bill than it was
diplomatic to publicly acknowledge. On July 22 Farwell tried to
arrange an appointment with Wilson to discuss modifications of the
Glass Bill, since the league had spent much time educating on general
:ii principles of sound banking, and “The present Glass-Owen bill, as

amended up to date, contains many of those principles.” Wilson
would not see Farwell, but Glass, Owen, and McAdoo all discussed
;l the technical aspects of the bill with him, and Farwell could report

progress to Laughlin. Both Farwell and Laughlin felt that the league
■i had primary responsibility for the Glass Bill; despite suggested

amendments, at the beginning of September the league, and Laughlin
in particular, felt they had attained their major goals and that the
Glass Bill should be passed without delay. 37

Businessmen, for the most part, were hardly concerned about
banking reform, but to the extent that they were they strengthened
1 I the position of the Glass Bill. The National Association of Manu-

237

facturers’ convention in May had left the door open to alternatives
to the once desirable Aldrich Plan by not passing a specific resolu-
tion. Very few resolutions arrived in the Senate and House on the
topic during the summer of 1913, but Harry A. Wheeler, president
of the U.S. Chamber of Commerce and an active member of the
National Citizens’ League, in August wrote Glass of his impressions
of business opinion on banking after returning from a national tour.
There was “a strong desire on the part of the business interests of
the country for the passage of a currency measure. There is a deeper
interest on the part of the businessmen than I have been them hereto-
fore exhibit in regard to any piece of national legislation.” Wheeler
favored the bill and suggested to Glass that he concentrate his efforts
on winning the country bankers to his bill. Lest it be thought Wheeler
was trying to swing Glass to his position, only the following week he
wrote Laughlin “that the merchants of the country deeply desire the
legislation. . . . The banks, on the other hand, are very much divided.
. . . personally I have a large amount of confidence that it is likely to
work out better than some of us now think.” 38

The attitude of the banking community toward the Glass Bill was
deeply divided throughout September and October, As we shall see,
much of the ostensible opposition was calculated to gain some con-
cessions, but the basic principles, as had been the case in May and
June, were heartily endorsed. The Banking Law Journal reversed its
editorial stand and came out against the bill in September. The
Bankers Magazine continued its traditional opposition to both the
Aldrich and Glass Bills, recommending instead an expansion of the
clearing house associations. But significant individuals were more
reluctant to attack the bill in a wholesale manner. Senator Owen’s
Committee on Banking and Currency began its hearings in early
September, and despite much criticism of the Glass Bill as it stood,
much praise for many of its basic features was also heard. Reynolds
and Wexler favored fewer than twelve banking regions, for example,
but they thought twelve better than the status quo, and they admitted
that the elasticity provisions of the bill were a sharp improvement
over the situation existing in the banking system at the time. And
even the strongest critics admitted that the banking system badly
needed legislation.

The Senate hearings dragged on for nearly two months, and the
delay encouraged numerous, once friendly, bankers to bargain for

238

WILSON AND BANKING

more concessions. Many bankers who supported the August 22-23
A.B.A. recommendations felt that the Senate was the proper ground
for a fight. Even the critical bankers allowed themselves important
loopholes for supporting the Glass Bill. “The administration’s cur-
rency bill as it now stands in the Senate embodies many features
that are fundamentally sound and consonant with the best traditions
of banking theory and practice . . A. Barton Hepburn declared
in mid-October. But what was necessary at this stage was “helpful
criticism . . . rather than commendation.” Despite the carping of
some bankers, Irving T. Bush, the once diehard Aldrich Bill leader
of the New York branch of the National Citizens’ League, declared
that the Glass Bill was a very good compromise which only needed
a few revisions. Even Paul Warburg, who concentrated on the desir-
ability of reducing the reserve regions to four, had favorable words
for the larger conception behind the Glass Bill. 39

From October 6 through 10 the American Bankers Association
annual convention met in Boston to deal with the entire legislative
picture. The currency commission, chaired by Hepburn, brought in
a strong attack on the Glass Bill contradicting his statements im-
mediately before and after the convention. There can be little doubt
that the resolution was initially intended to serve as useful political
leverage and a bluff to obtain concessions. The resolution, condemn-
ing the Glass Bill as a form of socialism, reached the floor and was
immediately attacked by a number of bankers. Instead of trying to
defeat the Hepburn report, friends of the Glass Bill attempted to get
a resolution passed to the effect: “That we commend the President,
the Secretary of the Treasury and Congress for their efforts to give
this country an elastic as well as a safe currency, and pledge them
our hearty support toward the enactment of proper legislation to that
end.” 40

Hepburn, immediately seeing the obvious advantages such a
statement would give him in supporting the Glass Bill and mitigating
the harshness of his own report, seconded the measure himself. Al-
though the currency co m mission report was to pass by a large
majority, only the resolution commending Wilson was to pass unani-
mously. For all practical purposes, the A.B.A. gave its officers a free
hand on legislative affairs.

“It is not true that the bankers are opposing legislation,” one
banker wired his Senator. “On the contrary, they, themselves, have

239

brought about the demand for currency reform and there has been,
and is now, a general apathy on the part of the public on this ques-
tion.” But at least a few bankers were willing to work for a wholesale
defeat of the Glass Bill. Frank A. Vanderlip, president of the Na-
tional City Bank had, since July, thought that it might be better to
have no measure than one not fully acceptable to the bankers. The
Senate Committee on Banking was obstructing the passage of the
Glass-Owen Bill to the floor, as an alliance of Republican Insurgents
and conservatives, including Democrats, blocked it in the intermina-
ble hearings. On October 23 Vanderlip presented the committee
with the draft of a bill clearly unrepresentative of his true viewpoint,
but ably designed to block the passage of any legislation. The scheme
provided for a much more centralized national bank with total con-
trol over all branches, as well as smaller liabilities to banks that
joined. For several weeks, until Wilson was able to break the im-
passe, the bankers were faced with the prospect of obtaining no legis-
lation whatsoever. 41

Earlier in October Glass had warned the bankers at a meeting of
the Academy of Political Science:

the time for action on this great question is now, while the public inter-
est is alive, and while we can act with that caution and deliberation which
is impossible when the country is in the throes of a financial panic. . . .
If legislation now is postponed until the public is goaded by another
panic, you may rest assured that the resulting legislation will be more
radical — yes, far more radical — than that contained in the present bill.

The logic of the argument was compelling and obvious, and major
bankers immediately turned on the Vanderlip scheme. “I am unalter-
ably opposed to obstructing any new banking and currency plan at
this late date,” Festus J. Wade wired Wilson. “I am confident the
great masses of the American people are not willing to have a cen-
tral bank inaugurated in this country.” Jacob H. Schiff released an
attack on the Vanderlip plan to the papers on October 27, and called
for the speedy passage of the Glass Bill. 42

A solid front between the Administration, Bryan, and the bankers
was too much for the Vanderlip junto in Congress, and despite some
exasperating moments for Wilson, the final outcome of the measure
was never seriously in doubt. Some of Vanderlip’s Senatorial sup-
porters, after all, were damning the Glass Bill for having been written

240

WILSON AND BANKING

by Willis, who was identified as an agent of Wall Street. An alliance
of this nature was not likely to last, and in late November the Glass-
Owen Bill was sent along to the floor of the Senate for debate.

As the Congressional aspect of the controversy continued, the
banking and business community debated the bill among themselves.
Glass could count on the support of Bryan and, finally, Untermyer,
and despite occasional opposition, the important bankers stopped
playing coy and aimed directly at a victory for the Glass Bill. La
Follette was insisting that the Glass Bill was “a big bankers bill,”
and he served to remind the bankers that there was a worse possible
fate than the one being offered to them. Jacob H. Schiff was urging
passage of the bill, and Festus J. Wade, along with his St. Louis
colleagues, released a statement that the Administration’s bill was the
best one ever presented. When he heard rumors that he was allegedly
against the Glass Bill, James Stillman notified his banks not to op-
pose the bill. Even Henry P. Davison gave up his hopes for the
Aldrich Bill and joined the forces behind Glass’ measure. Henry Lee
Higginson, perhaps predictably, notified Richard Olney “I very muck
wish the bill success — I shall be glad for Wilson’s glory if he suc-
ceeds.” 43

One incident illustrates the extent of the Glass Bill’s true popu-
larity in New York banking circles. Glass was invited to debate the
issue of banking reform with Vanderlip before the Economic Club
on November 13. Eleven hundred presumably hostile bankers and
businessmen, according to Glass, gathered to see the battle. Only the
prior month Vanderlip was attacking the “obnoxious” powers given
to the Federal Reserve Board under the Glass Bill, nevertheless indi-
cating that “as a matter of fact, I am extremely favorable to about
eighty per cent of it.” Now, Vanderlip was forced to justify a far
greater political centralization. Glass was quite amazed at the mas-
sively favorable response to his speech and at the warm report on
the proceedings in the pro-Roosevelt journal, The Outlook. Ignoring
the fact that The Outlook had endorsed his bill several weeks earlier,
and that the audience was not at all hostile to start with, the favor-
able response to Glass at this stage was perfectly consistent with
everything else taking place within the banking and business com-
munity at the time. The most significant aspect of the entire affair,
however, was the obvious extent to which Vanderlip felt uncom-
fortable in his new role. “Everyone concerned in this legislation is

241

in pretty substantial agreement upon what result they are seeking,”
he admitted, “and within very broad lines upon the nature of the
banking machine that must be set up to accomplish it.” He made
his criticisms, but he also praised Wilson for his stand for legisla-
tion, and reminded his audience, almost apologetically, that “For
years bankers have been almost the sole advocates of just this sort
of legislation that it is now hoped we will have, and it is unfair to
accuse them of being in opposition to sound legislation.” 44

By the beginning of December, despite the strong attacks on
certain phases of the bill by Elihu Root in the Senate — he still in-
sisted he was for a strong reform measure — the direction of banker
sentiment was overwhelmingly for the Glass-Owen Bill. In October the
National Citizens’ League’s executive committee closed up shop on
the grounds “that the work of the organization has been practically
completed and success has been achieved.” Although some bankers
might oppose certain provisions of the Glass Bill, the league pointed
out, neither the Aldrich nor the Glass Bill was perfect in all respects,
“But either plan has obvious merits and forms a basis on which can
be built up an operating success.” “. . . . the Glass bill complies with
approximate satisfaction to the principles of banking reform orig-
inally fixed by the League. . . .” This handsome endorsement, which
was quite obviously sincere, was soon followed by many others. Mid-
western bankers overwhelmingly favored the Glass-Owen Bill, Un-
termyer could report to Tumulty in mid-November. Hundreds of
letters that poured into the White House from bankers, business-
men, and professionals confirmed this impression. When faced with
the choice between the Glass Bill or none at all, nearly all banks
opted for the Glass Bill. When faced with a choice between Glass’
measure and Vanderlip’s, they fought Vanderlip’s. Glass had pleased
the bankers in his debate in New York, and he wisely sought their
advice on technical points during the following weeks. In mid-
December the Vanderlip forces in the Senate, led by Senator Gilbert
M. Hitchcock, seemed on the verge of defeating the Glass-Owen Bill.
Glass notified Hepburn, Wexler, and Reynolds of the situation, and
together with Wheeler of the U.S. Chamber of Commerce and J. H.
Tregoe of the National Association of Credit Men they were able to
mount a telegram campaign endorsing the original Glass Bill and
attacking the Vanderlip Plan. 45 On December 19 the Senate passed
the bill, with only one important modification (raising the gold reserve

242

WILSON AND BANKING

behind Reserve currency from 331/3 per cent to 40 per cent), by a
vote of 54 to 34. On December 22 the House passed the conference
bill by a vote of 298 to 60, the Senate by a majority of 43 to 25.

The Authorship of the
Federal Reserve Act

A banking reform bill had been enacted and the bankers were
pleased. Carter Glass immediately received congratulations from
Hepburn, Wexler, Warburg, Forgan, James Speyer, and many other
bankers. Businessmen such as John Wanamaker, James V. Farwell,

Irving T. Bush, Charles R. Crane, and numerous others wrote him,
full of praise for his work. Wilson also received hundreds of con-
gratulations from bankers, businessmen, and business organizations.
Important business organizations were also ready to endorse the new
Act at their conventions during the subsequent months. The Na-
tional Chamber of Commerce and the National Association of Credit
Men were perhaps the quickest to respond. Among bankers, without
doubt, the consensus was strongly favorable and perfectly consistent
with their stand immediately before the final passage of the bill.
Warburg was quite sincere when he wrote Glass on December 23,

1913, that “The fundamental thoughts, for the victory of which some
of us have worked for so many years, have won out.” The character
of the board was of paramount importance to the future of the Act,
he wrote Laughlin in February, 1914, but “the law on the whole is !
a great step in advance. . . .” Discussing the matter among them-
selves, bankers were equally friendly to the Act, and Laughlin was
entirely correct when he stated, several months later, that “the sum
and substance of the whole act is so remarkably good, that the com-
bined support of both bankers and the public is certain to be given
to it. . . .” 48

Pride in the Federal Reserve Act was so great, in fact, that an
intense controversy over its authorship was almost immediately to
develop and simmer for well over a decade. The four major con-
testants for the authorship of the Federal Reserve Act were Willis,

Glass, Warburg, and Laughlin, and one cannot understand the sub-
sequent autobiographical accounts of the evolution and passage of

243

the Act without also appreciating the fact that the desire to claim
its paternity was uppermost in the minds of each of these men.

If one regards the Federal Reserve Act as part of the longer his-
tory of the banking reform movement, then certainly Laughlin’s
claim for the major responsibility for the Act is fairly well substan-
tiated — despite numerous minor errors in his autobiography. But on
all questions of important fact, none of the four major autobiogra-
phies is entirely accurate, and none can be accepted as the final
version. No attention should be given to the numerous minor claim-
ants, such as Owen and Untermyer. The bankers were the only sig-
nificant group concerned with banking reform after 1897, and their
problems and needs were the primary cause and motive behind the
Act. For the Federal Reserve Act was the result of a movement led
by bankers seeking rationalization, and hoping to offset the decen-
tralization of banking toward small banks and state banks. The ex-
pansion and domination of banking by big city bankers was possible
only with the aid of the federal government, and although the Act
solved many of the problems of the small bankers, it held out the
promise of reversing those larger tendencies within the banking sys-
tem running against the big city bankers.

There was no disagreement among bankers in 1913 that legisla-
tion was desirable, but only over the precise form it should take. The
best that might be said is that the Federal Reserve Act was the
victory of Southern and Western banking, although even this view is
inaccurate, but it certainly cannot be claimed that the Act was the
victory of the people over the bankers. The significant support for
reform came from the big bankers from 1909 on. Initially the major
bankers favored, for the most part, the principles of the Aldrich Bill.
They then supported the principles of the Glass Bill. The issue re-
mains: to what extent did the big bankers obtain all or most of the
principles of the Aldrich Bill in the Federal Reserve Act? And, fax
more important, to what extent did the Federal Reserve Act serve
the interests of the big bankers irrespective of its differences from the
Aldrich Bill?

Nelson Aldrich, for his part, was very strongly opposed to the
Glass Bill as a whole throughout 1913, and although he felt it had
“some features which were copied from the National Monetary Com-
mission’s plan . . .,” it was “in the main ... a very bad bill. . . .”
Even when some of his old associates, such as Henry P. Davison,

244

WILSON AND BANKING

tried to point out similarities on essentials, the dour ex-Senator re-
fused to put his seal of approval on any major aspect of the Glass
Bill. He sourly pronounced to Taft that the bill was “revolutionary in
its character,” and “will be the first and most important step toward
changing our form of government from a democracy to an autoc-
racy .” 47

Despite Aldrich’s insistence that the Federal Reserve Act had
very little in common with his own proposal, he could not dissuade
many of his conservative friends from supporting the Glass Bill, or
from feeling that there was a direct continuity between the two plans.
Root was convinced, for his part, that “The Federal Reserve Act
was based directly upon the bill reported by the Monetary Com-
mission. ... It was the bill reported by that commission with some
modifications.” Henry P. Davison, who helped formulate the Aldrich
Bill, also thought there was a direct continuity between it and the
Federal Reserve Act. Herbert L. Satterlee, Morgan’s son-in-law and
official biographer, shared this judgment, and many years later an
Aldrich descendant, surveying the available evidence, came to the
same conclusion. Other contemporary commentators shared this view
also, and it has been passed along without any real resolution . 48

From the vantage of crucial personnel and moving forces, the
theory of the direct continuity between the Aldrich and the Glass
Bills is certainly valid. The question remains, however, as to what
extent the specific provisions and functions of the two plans were
identical or significantly similar. Glass insisted th t the two plans had
nothing in common “beyond a common use in some cases of indis-
pensable banking technique and nomenclature,” and that his bill
drew heavily on the clearing house experience of American banking.
Willis’ interpretation of the matter was virtually identical . 49

An analytical comparison of the text of the final Federal Reserve
Act and the Aldrich Bill reveals striking similarities, and ir» a number
of places the wording of the two plans is virtually identical or only
slightly modified. Warburg, seeking to vindicate his claim to the pa-
ternity of the Act, juxtaposed the texts of the two bills in parallel
columns, and by doing so greatly diminished the credibility of Glass
and Willis’ claim that the Aldrich Bill was unimportant to the final
Act.

The Federal Reserve Act provided for eight to twelve districts
as opposed to fifteen in the Aldrich Bill. All national banks under the

245

Act were required to become part of the Federal Reserve System
and to subscribe to capital stock in the Federal Bank equal to 6
per cent of their paid-up capital stock and surplus. State banks meet-
ing certain requirements could voluntarily affiliate with the System.
The Aldrich Bill made national bank affiliation optional, and fixed
the capital subscription at 20 per cent of a bank’s paid-in and unim-
paired capital. The board of each Federal Reserve District, number-
ing nine, was to be divided into three classes of three members each.
Class A directors were to be elected by the bankers, each bank hav-
ing one vote. Class B directors were not to be bankers but were to
represent those engaged in “commerce, agriculture or some other
industrial pursuit.” These men were nominated and elected, however,
by the member banks of the district, and could be ex-bankers. Banks
were to be divided into three groups, by size, and each could elect
one director in classes A and B, or a total of six directors. Class C
members were to be appointed by the Federal Reserve Board, and
one was to be “a person of tested banking experience” designated
as the chairman. The Aldrich Bill called for twelve directors, six
chosen by banks irrespective of size, four by banks in proportion
to their capital, and two who were to be representatives of non-
banking interests, elected by the ten previously chosen. The Aldrich
Bill merely put control of the districts in the hands of the bankers,
but the Federal Reserve Act made it possible for the bankers to take
over each district, put nothing in the way of this happening, and gave
them the means of controlling two-thirds of the directors.

The Federal Reserve Board was to consist of seven members,
two of which were the ex officio Secretary of the Treasury and the
Comptroller of the Currency. The five were appointed by the Presi-
dent with the approval of the Senate for staggered terms, and not
more than one could be chosen from any district. At least two were
to “be persons experienced in banking or finance,” but none could
be directors or stockholders of banks while in office. The board
under the Aldrich Bill was entirely banker controlled, consisting of
fifteen bankers and fifteen nonbankers, all elected by the branches,
plus nine members elected by the nine largest branches and seven
ex officio members, including the Secretaries of the Treasury, Agri-
culture, and Commerce, and the Comptroller. An executive commit-
tee of eight was to be chosen from this board, with not more than
one from any branch. The Federal Reserve Board could fix the rates

246

WILSON AND BANKING

for rediscounted paper in the districts, suspend and adjust reserve
requirements according to certain rules, issue and retire Reserve
notes, and exercise very extensive controls over the various district
banks. Since the Aldrich Bill allowed the branches to exercise the
power to rediscount and discount wi thin their area, and was far more
decentralized in many other crucial respects, the Federal Reserve
Act reflected a higher degree of centralization.

The various Federal Reserve Banks had primary responsibility
for the actual discounting of less than ninety-day commercial notes,
drafts, and bills as well as certain limited forms of agricultural credit
for up to six months. The Aldrich Bill was virtually the same, except
that it ignored agricultural credits. The open market provisions of
both measures, allowing reserve banks to buy and sell bankers’ ac-
ceptances, bills of exchange, gold, U.S. bonds and notes, were the
same in most essential respects. The Aldrich Bill intended continuing
existing reserve requirements, but the Federal Reserve Act fixed them
at 12 per cent of total demand deposits for banks not in reserve or
central reserve cities, 15 per cent for banks in reserve cities, and 18
per cent for banks in central reserve cities. Reserves in gold or lawful
money against reserve notes in circulation were to be 40 per cent
under the Reserve Act, as opposed to 50 per cent under the Aldrich
plan. Federal Reserve notes under the Act were the obligation of
the Treasury and were acceptable currency for all purposes, but
under the Aldrich Bill notes were mainly for internal bank transac-
tions. Both plans allowed clearing houses to be set up in the various
districts and branches, and gave Washington the power to order their
creation.

The Federal Reserve Act required the payment of 6 per cent
dividends on the paid-up capital of its stockholders, as opposed to
4 per cent under the Aldrich Bill. Banks with a minimum capital
and surplus of $1 million were permitted to obtain Federal Reserve
Board approval to create foreign branches, as opposed to twice that
amount in the Aldrich Bill.

Shortly after the passage of the Federal Reserve Act, and before
the controversy over its authorship became intense, Willis wrote an
outline of the new Act, admitting that “With regard to stock issues,
kinds of paper eligible for rediscounts, and not a few other particu-
lars, the Federal Reserve Act follows lines laid down in the measure
which bore the name of Senator Aldrich.” 50 Allegedly in order to

247

reduce the opposition, in certain spots even the language of the two
bills was identical. But despite this concession by Willis, the fact
remains that the two plans differed in many particulars, and it is
true that the identical language was not followed extensively in the
most important parts of the new Act.

In major areas the differences between the two plans were of
degree rather than kind, and, if anything, the new Act provided for
substantially greater centralization. The crucial question is whether
the intended functions of the two plans were identical, from the bank-
ers’ viewpoint. To what extent did the Federal Reserve Act serve the
interests of the big bankers irrespective of its differences from the
Aldrich Bill?

The Fruits
of Victory

The response of business and banking circles to the Act during
its formative period, prior to its opening for actual operations in
November, 1914, was overwhelmingly favorable. National banks had
sixty days to join the system or give up their charters, and within one
month after the passage of the Act three-quarters of the capital of
the national banks was represented by the applications for admission
to the system, including nearly all the large banks in the major cities.
Four times as many state banks and trusts companies applied for
national charters as during the same period of the prior year, and
John S. Williams, Assistant Secretary of the Treasury, reported to
Wilson that “The eagerness with which the banks have vied with
each other in accepting the provisions of the new law is nothing less
than extraordinary. . . .” Expressions of support for the new Act
were to filter in throughout 1914.

The truly significant fact was not the overwhelmingly favorable
attitude of the business community, but the realism of those bankers
who were fully aware that the success or failure of the Federal Re-
serve System would depend not on abstract laws but on concrete
administrators. 51 The selection of the personnel of the Federal Re-
serve Board was left very largely in the hands of Colonel House,
although McAdoo also made several important recommendations.

248

WILSON AND BANKING

Both men sought the advice of various members of banking circles,
and the immediate rumors that Warburg or A. Piatt Andrews were
being considered for board membership shocked Willis. “I fear from
the types of names suggested for the Federal Reserve Board,” he
wrote Glass at the end of December, “that the old Aldrich central
bank group is endeavoring to get into control or at least large man-
agement in the new system.” If it succeeded, he feared, the law might
be shaped along “central bank lines.” On the other hand, such ru-
mored appointments greatly encouraged former critics of the Glass
Bill. Perhaps far more symbolic than the advice of George Perkins
or Paul Warburg that it would be discreet to wait until Wilson made
his appointments before criticizing the Act, was the private state-
ment made by none other than Nelson Aldrich to John A. Sleicher
of Leslie’s Weekly on February 7:

Whether the bill will work all right or not depends entirely, as I stated,
upon the character and wisdom of the men who will control the various
organizations, especially the Federal Reserve Board. There is undoubtedly
a general disposition to make the best of the legislation with the hope that
it may turn out all right. . . .

The genera! effect of the act has unquestionably been helpful. While
I have some doubts about the ultimate results, it seems to me no good
purpose would be subserved by expressing publicly any doubts upon the
subject. 62

The first serious board candidate, eventually nominated and ac-
cepted, was W. P. G. Harding, the president of the largest bank in
Alabama and apparently the proposal of House. House then recom-
mended Richard Olney and suggested several businessmen for Wil-
son’s consideration. Wilson, at the end of April, then offered posts
to Warburg, Richard Olney, and Harry A. Wheeler, former chairman
of the U.S. Chamber of Commerce, former National Citizens’ League
director, and president of the Union Trust Company of Chicago.
Wheeler and Olney declined, but Warburg accepted the nomination.

Wilson had urged Olney to take the post because “the whole
business world would be greatly heartened if you did.” Businessmen
were delighted by the Warburg appointment instead, but rumblings
of a fight were immediately heard as Owen, Willis, and others pro-
tested. Warburg’s friends, for their part, insisted that he had sup-
plied most of the ideas for the Act and deserved the post. But the
response to Warburg’s appointment was nothing compared to the

249

storm that broke out when Thomas D. Jones, a director of Interna-
tional Harvester and an old Princeton friend of Wilson’s, was nomi-
nated. Wilson was deeply committed to Jones for personal reasons,
and failed to get the Senate to approve his nomination despite his
utilization of all the tools available to him. Warburg’s confirmation,
during July, was also delayed by reticent Senators curious as to how
this Wall Street tycoon was to muzzle the Money Trust. Wilson
could not understand the dislike for big capitalists among a number
of Senators, and on July 8 he chose to remind the Senate, “It knows
that the business of the country has been chiefly promoted in recent
years by enterprises organized on a great scale and that the vast
majority of the men connected with what we have come to call big
business are honest, incorruptible and patriotic.” 53

Perhaps the Senate was chastened, but it had one victory and
decided to spare Warburg if he would come for a “conference” rather
than a hearing before the appropriate Senate committee. Besides, the
President had fought hard and well, and his adamant posture dis-
suaded them from overriding him again. While the Warburg-Jones
crisis raged, Wilson moved to fill his other board posts. Adolph C.
Miller, formerly an economist teaching at the University of Cali-
fornia, was offered a post and accepted. Several important Midwest-
ern bankers were offered posts but declined. To take the place of
one of these rejections, Frederic A. Delano, a railroad administrator
and a former director of the National Citizens’ League, was given
the job. 54 Charles S. Hamlin, a Boston attorney, was given the fifth
seat. In all, the banking community and those close to it were given
three of the five board seats.

The Federal Reserve Board was chosen, and the banking com-
munity was satisfied. In the two most important Federal Reserve
Districts the bankers moved to obtain the dominating positions of
their regions, and throughout the nation they obtained many crucial
posts. In Chicago, Reynolds was elected as a class A director repre-
senting the large banks, and Forgan was elected a class A director
for the medium-size banks. Both men were nominated for the gov-
ernorship of the district, but since both were unwilling to accept the
decrease in pay they preferred having a government bank examiner
in whom they had confidence appointed instead. More important,
however, was the appointment of Benjamin Strong to the governor-

250

WILSON AND BANKING

ship of the New York Reserve Bank. Strong had been the president
of the Bankers Trust Company and a director of many banks, as well
as an early advocate of the Aldrich Bill. Many of Elihu Root’s at-
tacks on the Glass Bill in the Senate were drafted by Strong, but just
prior to its passage he decided to give it critical support in the hope
of “making the best of it.” Now, due to the pleadings of Warburg
and Henry P. Davison, Strong resigned from his many lucrative posts
to take the leadership of the most important bank district in the
nation. 55

While the regional banks were working out their own organiza-
tional problems, the Federal Reserve Board in Washington moved to
make specific the many general and flexible provisions of the Federal
Reserve Act. Many points of disagreement were to arise, especially
on the sensitive point of the relationship of the board to the Treasury
Department. Warburg, Miller, and Delano feared that Secretary of
the Treasury McAdoo sought to control the banking system — a con-
tention McAdoo was quick to deny — and a conflict was inevitable.
McAdoo was to win the battle but lose the war, since the board
became a largely independent operation. The basic point of conten-
tion was the number of reserve districts. Warburg had never wanted
twelve or even eight districts, and before his nomination was con-
firmed he frankly admitted to Colonel House, who passed the infor-
mation to Wilson, that “it will become necessary to divide the country
into four or five sections, each of which would be in particular charge
of one member of the Federal Reserve Board. . . .” 5a Since each
board member would be in charge of his home district, Warburg
blandly announced, he was scheduled to take over New York, Phila-
delphia, Boston, and the entire upper Atlantic region. Wilson should
have taken an unequivocal position on this suggestion, but he let it
pass. It is no wonder, then, that Warburg was ready to contest the
district structure handed to the board when it opened for business in
late 1914.

The organization committee of the Federal Reserve System had
created twelve districts before the board came into power. The Act
itself allowed for as few as eight districts and permitted the board
to readjust boundaries. By mid-1915, despite the protests of local
banking interests, Warburg, Delano, Harding, and Miller moved to
reduce the number of districts to eight. McAdoo, outnumbered on
the board, managed to get the support of Wilson and Glass, and on

251

November 22, 1915, the Attorney General handed down a ruling
forbidding the board to reduce the number of districts or change the
location of existing reserve cities. In the last analysis, however, Wil-
son believed in an independent board free of political interference,
and Warburg’s faction won a number of successes, in large part be-
cause the outbreak of the war favored their arguments on the need
for further centralization of the banking system. Reserve require-
ments were altered to meet the original standards of the Aldrich Bill,
much to Willis’ dismay. Such changes were relatively minor, how-
ever, and the Federal Reserve Act was not revised in any funda-
mental way in this period. Nor was such a revision advocated by the
banking community, although the American Bankers Association was
not inflexible on small changes. Had it been unhappy with the basic
structure of the Act, or with the way it was being administered, it
probably would have said so. Perhaps the machinery of the system
was somewhat too complicated, the Journal of the American Bankers
Association concluded late in 1915, but

It would be better to make no change at all than to have the act tom to
pieces. It is certain that there has been created an agency capable of per-
forming the work intended. There will be no further panics due to a bad
currency system. Business will not be stifled by a defective banking
scheme . 07

The goal of nearly two decades of labor by banker-reformers had
been attained!

“. . . if all such prejudices, political and sectional, against New
York and its bankers can be overcome by such measures as have
been adopted in the Federal Reserve Act,” Benjamin Strong sug-
gested in June, 1915, “I should feel that the work now being done
has been well repaid.” The bankers, after all, managed their own
regulation, and under the aegis of the federal government, Strong
pointed out in 1919, the bankers of New York had ended anti-Wall
Street sentiment and insulated themselves. 68 Strong was fully aware
of the function of the Federal Reserve System in protecting the bank-
ing community, and he was conscious of his power within the New
York District. Until the passage of the Federal Reserve Act the
relative power of New York in national banking was declining, but
from 1914 to 1935 it dominated American banking as it had only

252

WILSON AND BANKING

in the 1890’s. And throughout this period Strong became at least as
powerful as Morgan had been in his best years.

It was natural that New York became the domi n ant factor in the
Federal Reserve System. The Federal Reserve Board was, for many
years, either seriously divided or handicapped by directors who had
no special leadership abilities — there was, in brief, a lack of firm,
strong leadership with a definite policy. Warburg, the only real con-
tender for such a role, left the board in 1918 at the end of his term,
and refused renomination because of the strong anti-German senti-
ment in government. The Federal Reserve Act coordinated, if not
centralized, the banking resources of the nation to an unparalleled
degree. The continual and routine decisions of New York banking,
because of this situation, affected the entire banking system in a much
more important fashion than ever before. The presumably decen-
tralized nature of the system allowed the most powerful of the inter-
locked districts to make innumerable operational decisions for the
remainder.

Strong and a carefully selected staff of his former associates and
aides ran the New York District, and the Federal Reserve Board
found it easier to channelize its operations through New York. From
1916 on, the New York bank, with the approval of the Federal Re-
serve Board, began acting for the entire system on foreign operations,
and the foreign trade of the nation was, to a large extent, financed
through the New York money market. Moreover, the New York
bank was appointed banker for the government in its foreign transac-
tions. From 1915 on. New York served as agent for buying securities
for all the Federal Reserve Districts, and it handled the traffic in
acceptances, and from 1922 on the New York bank handled most of
the open market functions of the system. Throughout the 1920’s the
increasing amount of call money sent to the New York Stock Ex-
change involved the Federal Reserve System in the stock market
to an unprecedented extent. Perhaps most significant, New York dis-
count rates became the leader for the entire system, and not only
attracted reserve acceptances to New York, but in some respects
introduced greater rigidity into the entire banking system.

The trend in the national banking system until 1913 was toward
a reduction in the bankers’ balances and individual deposits in New
York, and in favor of the relatively more rapid growth in the Mid-
west and West. The most conservative estimate shows that New

253

York held 53.6 per cent of U.S. bankers’ balances in 1915 and 52.7
per cent in 1928, and, thus, that it dominated the national banking
system; some, such as Lawrence E. Clark, have argued that New
York’s relative share of reserves increased between the passage of
the Federal Reserve Act and the Depression. The Federal Reserve
System, for the most part, stabilized the financial power of New
York within the economy, reversing the longer term trend toward
decentralization by the utilization of political means of control over
the central money market. Clark concluded:

So overwhelming has been the power of the New York Reserve Bank
that the instrumentalities through which the Federal Reserve credit policy
has been expressed may be brought into a grouping of three — the Federal
Reserve Board, the Federal Reserve Bank of New York, and the other,
or interior, Federal Reserve banks. At times the Federal Reserve Board
has held the balance of power in the system and at other times the New
York Reserve Bank. But the influence of the interior Reserve banks has
always been weak. On the v/hole there is reason to believe that the Fed-
eral Reserve Bank of New York has been the dominant instrumentality
which has controlled the credit policy of our central banking system . 59

The question arises: To what extent was the evolution of the
Federal Reserve System into a crucial aspect of political capitalism
inherent in the very premises and specifics of the Act? As we have
seen, the banking reform movement was initiated and sustained by
big bankers seeking to offset, through political means, the diffusion
and decentralization within banking. In 1895 the government went
to Morgan for financial aid, but in 1907 Morgan came to the gov-
ernment. But in going to the government, banker-reformers brought
concrete plans and specific personnel, and given the pro-capitalist
frame of reference of all the major parties, it was the bankers who
provided the legislative formulations of all significant bills.

It was no coincidence that the Glass-Underwood-Wilson Demo-
crats created a measure very much to the liking of bankers and con-
servatives alike. During the war McAdoo found it useful to have the
banking system centralized, as Willis put it, “by accepting the domi-
nance of the Federal Reserve Bank of New York in the councils of
the Reserve system and by employing the machinery of the Reserve
Bank of New York for the purpose of directing and reorganizing the
finances of the rest of the country.” This centralization lasted after
the war, but lest it be thought it was a necessity imposed by extraor-

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WILSON AND BANKING

dinary circumstances, even Carter Glass, in a moment of frankness,
admitted that it was hardly the destruction of the Money Trust that
he sought in his bill. In April, 1916, well before the emergency
reorganization of the American economy for war, Glass told a Wash-
ington audience that

The proponents of the Federal reserve act had no idea of impairing the
rightful prestige of New York as the financial metropolis of this hemi-
sphere. They rather expected to confirm its distinction, and even hoped
to assist powerfully in wresting the scepter from London and eventually
making New York the financial center of the world. Eminent English-
men with the keenest perception have frankly expressed apprehension of
such result. Indeed, momentarily this has come to pass. And we may
point to the amazing contrast between New York under the old system
in 1907, shaken to its very foundations because of two bank failures, and
New York at the present time, under the new system, serenely secure in
its domestic banking operations and confidendy financing the great enter-
prises of European nations at war. 60

CHAPTER TEN □□□□□□□□□□

THE TRIUMPH OF
POLITICAL CAPITALISM:
THE FEDERAL
TRADE COMMISSION
AND TRUST LEGISLATION

during most of 1913 Woodrow Wilson and his aides were pre-
occupied with banking reform and tariff legislation. But the pressure
for more extensive federal regulation of corporations and business
was great, and the New Freedom also obligated the Administration
to take action in this area. To precisely what was Wilson committed?
The New Freedom was, in the final analysis, intended to serve as a
campaign document, and the doctrine was full of inconsistencies. “I
am for big business, and I am against the trusts,” Wilson declared,
but he could not define the major differences between the two and
he never gave the matter serious thought. He proclaimed that “The

255

256

THE F.T.C. AND TRUST LEGISLATION

development of business upon a great scale ... is inevitable,” and
also expressed satisfaction that businessmen were begi nnin g to reform
themselves. 1

The guidelines utilized by Wilson were amorphous. What was
certain, however, was the demand of leading businessmen for federal
regulation designed to meet their problems. Since the failure of Per-
kins, Gary, and the National Civic Federation forces to enact the
Hepburn Bill in 1908, important segments of big business had sought
to overcome the condition of uncertainty that existed in innumerable
industries. Federal incorporation had been prominently mentioned
as a possible solution for well over a decade, but Congress was never
willing to act on the principle. The idea of a trade commission simi-
lar to the I.C.C. was actively promoted by George W. Perkins and
many others from early 1911 on, and both the Progressive and Re-
publican Parties endorsed the proposal in 1912. Gary and Carnegie
were even suggesting government price-fixing! Armed with the Na-
tional Civic Federation’s business opinion poll of late 1911, big busi-
nessmen stridently called for federal regulation of the economy.

It was obvious that without strong Executive support there could
be significant legislative advances toward a political capitalism only
as a result of irate public opinion manipulated to satisfy business
ends. Save in railroad legislation, much of the real progress toward
political capitalism from the beginning of the century until 1913 had
been an incidental byproduct of scandals and amorphous reform
enthusiasm among the wider public. In 1913 Wilson had little guid-
ance save from fundamentally conservative individuals, of whom
Colonel House was the foremost, who directed Wilson’s unclear but
moderate impulses toward conservative ends. Bryan, despite his emo-
tional radicalism, was also a shrewd politician, and it was difficult to
reduce his arsenal of phrases and cliches to specific proposals for con-
crete changes. Moreover, Wilson could barely tolerate Bryan’s style
and manners, and relied on him only when it was absolutely neces-
sary. During 1913, despite a few dramatic antitrust cases by the
fundamentally conservative but literal-minded Attorney General,
James C. McReynolds, Wilson was responsive to the pressures and
desires of big business. There was more progress in the fulfilment of
big business interests through the Federal Reserve Act alone than
there had been in well over five years.

Wilson’s ideological conservatism has been appreciated by his-

257

torians. The extent of that conservatism can only be fully under-
stood, however, when we pass from Wilson as an intellectual to Wil-
son as an administrator. The New Freedom, after all, was not merely
a doctrine — in any serious sense it was hardly that. The New Free-
dom was, more than anything else, government regulation of bank-
ing, industry, and railroads. Wilson during his eight years as a trust-
buster initiated substantially fewer cases than Harding and Coolidge
during their two terms. Wilson’s other reforms were, for the most
part, of no great significance to a wider public.

Wilson and
Business

Wilson did not enter office under any sort of cloud that might
have made big business apprehensive. . . we shall get more experi-
ence with respect to economic and industrial policies,” Senator Jo-
seph B. Foraker predicted immediately after the election, and even
Taft found it possible to approve Wilson’s new Cabinet, an appro-
bation that was eventually to blossom to admiration for Wilson in
general. J. P. Morgan, on his deathbed, was full of optimism for the
new Administration, and he offered his services to the President
through George Harvey. 2

Senator Francis G. Newlands, the old Democratic advocate of
federal incorporation, by 1912 was ready to try instead to obtain a
commission, and Wilson’s victory made him chairman of the crucial
Senate Committee on Interstate Commerce. Despite the increasing
possibilities for action in 1913, very little was done. Pressure for ac-
tion existed, of course, but it was mild in a prosperity year. Roose-
velt kept up his demand for an interstate trade commission, but
George Wickersham denied the need for any serious changes in the
Sherman Act. Letters continued to pour into the Department of Jus-
tice, as they had in previous years, asking for opinions on the legality
of various actions. And, as Arthur Eddy told a Department of Justice
official, “I am interested in seeing passed broad and comprehensive
legislation, legislation which will really reach the evils the industrial
world suffers, at least as effectively as the Interstate Commerce Law
reaches some of the evils in transportation.” 3

258

THE F.T.C. AND TRUST LEGISLATION

It was logical that the Department of Justice concern itself with
the problem of the relationship of the government to business. It was
even more logical, however, that the Bureau of Corporations try to
reconsider the problem in light of the commitments of the New Free-
dom. Joseph E. Davies, the new head of the bureau, pondered about
the matter and in July, 1913, sent Secretary of Commerce William
C. Redfield a memo on the topic; Redfield approved it and immedi-
ately sent it along to Wilson. Perhaps the Davies memo was really a
rationale for larger appropriations for the bureau — he asked for a
tripling of its budget — but it is at least of significance as an example
of an attempted definition of the role of the executive in the New
Freedom. Big business had implications to the general political struc-
ture insofar as it had the power to create a state within a state, and
it had the power to affect labor, Davies admitted. Both of these prob-
lems were beyond the interest of the bureau. What was of concern,
Davies suggested, was the effect of big business on the costs of pro-
duction and prices. In addition to its specific industry investigations,
it was time for the bureau to discover “what principles or laws
generally underlie industry and its relation to society and to the
state. . . .” Questions to be explored were the relationship of size to
efficiency and prices, and “whether the regulation of practically mo-
nopolistic units or the restoration of competitive units is the true and
correct solution.” This task, Davies modestly proposed, was to be
completed in a five months period. As if this were not enough, state
corporation laws and trade agreements would also be studied in great
detail. If state laws could be made uniform it “would eliminate one
of the principal arguments for centralization of power in the National
Government for the regulation of corporations. . . .” Moreover, a
really serious study of trade agreements could determine which ones
ought to be exempted from the Sherman Act. The Davies memo indi-
cated the doubt and confusion that existed among so many crucial
leaders around Wilson, and left the door wide open to those who knew
what they wanted. Davies’ ambitious answers were never produced.

By October, 1913, however, it was increasingly obvious that Wil-
son’s current legislative preoccupations were going to attain fulfil-
ment and that “antitrust” legislation would be a serious issue in 1914.
In late October, Ralph W. Easley, the director of the National Civic
Federation, wrote McReynolds about antitrust legislation. Referring
to the unhappy experience with the Hepburn Bill under Roosevelt,

259

Easley indicated that he had another draft bill available that had
been produced by Seth Low, James R. Garfield, C. A. Severance,
Samuel Untermyer, John B. Clark, and J. W. Jenks. An audience
was requested and immediately granted. The federation’s plan pro-
vided for a seven-man Interstate Trade Commission chosen by the
President and with powers of investigation and subpoena, and the abil-
ity to refer its complaints to the courts and fine companies $5,000
for each violation. The commission could license corporations, and
would require annual reports. Its jurisdiction would apply to compa-
nies with sales of $10 million and up. The proposal received an im-
portant circulation and a copy was sent to Wilson, while Davies also
discussed the matter with Easley in detail. 4

By the end of 1913 Wilson was feeling very mellow toward busi-
ness. It had been most cooperative — indeed its aid had been crucial
— in the campaign to obtain banking reform. On December 19 he
wrote McReynolds that “I gain the impression more and more from
week to week that the businessmen of the country are sincerely desir-
ous of conforming with the law, and it is very gratifying indeed to
be able to deal with them in complete frankness and to be able to
show them that all that we desire is an opportunity to cooperate with
them.” During the same month, conscious of the long preceding
effort to obtain a federal commission, the House Committee on the
Judiciary, chaired by Henry D. Clayton of Alabama, opened hear-
ings on the entire problem of trust legislation. And from late 1913
on the leaders of the business community began shifting their atten-
tion to the need for greater federal regulation of the industrial
economy.

The President was fully aware of the fact that the business com-
munity resented the insecurity of the Sherman Act and wished to
attain a measure of predictability and confidence that had been lack-
ing under Taft. He was certainly familiar with the call for a “Fed-
eral Trade Commission” in the Republican platform of 1912, and
the obsessive concern of the Progressive Party with the issue. Was it
not Wilson, in the closing days of the campaign of 1912, who
warned that “If the government is to tell big businessmen how to
run their business, then don’t you see that big businessmen have to
get closer to the government even than they are now?” But the cam-
paign was over, and by January, 1914, the pressure for a federal

260

THE F.T.C. AND TRUST LEGISLATION

commission was very great indeed. Virtually everyone, from Rep.
Dick T. Morgan of Oklahoma to members of top Wall Street circles,
wanted some form of commission — for their own reasons. Only Sen-
ator William E. Borah and a few others condemned the movement
toward commissions and boards, the movement which would take
decisions “entirely away from the electorate,” and expose these
boards to “the influence and the power that affect other men. . . .” 6

On January 20 Wilson appeared before a joint session of Con-
gress and made it clear that future trust legislation would be just as
responsible as banking legislation had been.

What we are purposing to do . . . is, happily, not to hamper or interfere
with business as enlightened businessmen prefer to do it, or in any sense
to put it under the ban. The antagonism between business and govern-
ment is over. . . . The Government and businessmen are ready to meet
each other half way in a common effort to square business methods with
both public opinion and the law. The best informed men of the business
world condemn the methods and processes and consequences of monop-
oly as we condemn them; and the instinctive judgment of the vast ma-
jority of businessmen everywhere goes with them.

There would have to be a prohibition of interlocking directorates,
Wilson told Congress. But the main burden of his Message was to
strike a most responsive chord.

The business of the country awaits also, has long awaited and has suf-
fered because it could not obtain, further and more explicit legislative
definition of the policy and meaning of the existing anti-trust law.
Nothing hampers business like uncertainty. . . . And the businessmen
of the country desire something more than that the menace of legal
process in these matters be made explicit and intelligible. They desire the
advice, the definite guidance, and information which can be supplied by
an administrative body, an interstate trade commission.

Businessmen were delighted with the conservatism and reason-
ableness of the President’s address, and messages of congratulation
poured in from all over the country, from small and big businessmen
alike. “It has had a very reassuring effect on the business community
here in New York . . a member of Speyer & Co. wrote Wilson.
“By your temperate, sober, earnest way in handling these important
matters,” a member of the Union League Club of New York as-
sured Wilson, “you have in our opinion (the opinion of life-long
Republicans) proved yourself a safe man to be at the head of the

261

country!” Seth Low, however, wrote Wilson that he would have con-
siderable difficulty defining a trust. The President, admitting he was
aware of the problem, assured him “You may be sure we shall not
attempt the impossible and will not even try to define a trust, but
confine ourselves to very specific provisions.” 8

The Campaign for
Legislation

Although numerous bills for trust legislation and a federal com-
mission had been introduced throughout 1913, the first politically
serious bills were not introduced in Congress until January 22, 1914,
when Rep. Clayton and Senator Newlands presented a rather timid
bill, similiar to Newlands’ earlier bills, providing for a five-man com-
mission to supersede the Bureau of Corporations. The proposal al-
lowed the commission to subpoena all necessary materials and to
recommend action to the Attorney General, who had the power to
arrange voluntary reorganization. The bill as it stood failed to appeal
to the Attorney General’s office, but it became the basis of discus-
sion for subsequent legislation. To complicate the matter, Clayton
also introduced four tentative bills amending the Sherman Act. The
first forbade attempted efforts at monopolization via price discrimi-
nation, but contained so many clauses it became meaningless. The
second extended “restraint of trade” to include agreements between
companies, a position long maintained by the Supreme Court. The
third bill forbade interlocking directors among banks, railroads, and
competitive industries, and the fourth was intended to eliminate in-
terlocking stockholdings.

In the meantime, the advocates of special proposals and concrete
steps were given ample opportunity to exert pressures wherever pos-
sible, and to voice their criticisms of the tentative bills. The concept
of a commission was never seriously opposed by any important seg-
ment interested in the topic, and Wilson was quite properly confi-
dent “that the businessmen themselves desire nothing so much as a
trade commission.” 7 At the hearings held by the House Committee
on the Judiciary, and by the Senate Committee on Interstate Com-
merce during February-June, 1914, the three major business con-

262

THE F.T.C. AND TRUST LEGISLATION

cerns for future legislation were specifically with interlocking direc-
torates, fair trade laws, and the status of trade unions under the
antitrust act.

Big business and bankers opposed a possible prohibition on in-
terlocking directorships in industry and banking. There was, in fact,
little reason for their anxiety, since one or two interlocks on a board
are insufficient for control if the outside directors do not represent
some significant power, in which case the leverage the power pro-
vides exists even without interlocking directorships. In brief, short
of a total transformation of existing economic relations, the prohibi-
tion of interlocking directorships is not too important. Nevertheless,
many big businessmen found the suggestion obnoxious, and the
American Bankers Association, the Railway Executives’ Advisory
Committee, and numerous individuals opposed any prohibitions.
Even Louis Brandeis suggested that a blanket ban on interlocks was
not desirable. At the same time that big business attacked the possi-
bility of prohibiting interlocking directorates, representatives of small
business associations of merchants, druggists, and grocers, as well as
large manufacturers, called for the legalization and even the enforce-
ment of fair trade price-fixing, a cause that Brandeis supported and
that was to be revived periodically . 8 Virtually all businessmen, big
or small, endorsed the general principle of a trade commission.

While the various tentative bills were under discussion, two busi-
ness organizations were to become especially important among the
many petitioning their Congressmen and appearing before Congres-
sional hearings, and were to shape the final legislation. The Chicago
Association of Co mm erce strongly desired a trade commission, and
under the leadership of Thomas Creigh, attorney for the Cudahy
Packing Company, it took a prominent part in the agitation for a
trade commission that could eliminate business uncertainty by giv-
ing business advice on the legality of proposed actions. This goal
became the heart of the Chicago Association’s program, although it
also favored a commission with the power to issue desist orders
before handing a complaint over to the Attorney General. The Na-
tional Chamber of Commerce also strongly endorsed the need for a
commission, but only a minority of the members of the Chamber,
led by Charles R. Van Hise, president of the University of Wisconsin,
accepted the Chicago position for a commission to advise business
on the legality of prospective actions. Although a few major city and

263

state groups, such as the Philadelphia Bourse and the New York
State Chamber of Commerce, opposed the basic premises of the
tentative bills, there is no doubt that the National Chamber of Com-
merce or the Chicago Association of Commerce reflected the over-
whelming opinion of virtually all levels and types of business. And
Congress knew business would support any action in this direction,
since Senator Newlands had submitted three bills to businessmen in
December, 1913, and favorable opinion in support of the basic prin-
ciple flowed in. 9

Until March 16, when the Trade Commission Bill was finally sepa-
rated from the proposed amendments to the Sherman Act and unity
imposed over the bevy of competing measures sponsored by the same
men, no conclusive and final business position was possible. More-
over, the exact provisions of a future Administration bill were un-
known. Various business organizations knew what they wanted, but
they were not sure of what they had. La Follette regarded the exist-
ing bills as “flabby and without teeth,” and Henry Lee Higginson
opposed the assortment as they stood. The Interstate Trade Commis-
sion Bill of March 16 was so weak that there was little question that
it would be amended. Introduced by Rep. James H. Covington of
Maryland, the new bill provided for a five-man trade commission
that could investigate a corporation to see if it was complying with
the antitrust law, gather information, and advise the Attorney Gen-
eral concerning dissolutions and prosecutions. The bill, on the whole,
was just as weak as it had been in its earlier confused form. And on
April 14 Rep. Clayton merged the basic contents of his various tenta-
tive bills into one coherent draft, the Clayton Antitrust Bill.

The revision of the Sherman Act was entirely unsatisfactory to
labor unions, who objected to the equivocal wording that “Nothing
contained in the anti-trust laws shall be construed to forbid the exist-
ence and operation of labor organizations.” Unionists wished an out-
right declaration that the antitrust laws did not apply to unions at all,
and efforts by several members of the House Committee on the Judi-
ciary to obtain such a clause failed. Changes in the wording of the
Clayton Bill applying to unions were made, but as historians have
commonly agreed, the Clayton Bill did not free unions from prosecu-
tion under the antitrust laws. 10 Despite intensive pressure by organ-
ized labor, Wilson regarded all efforts to have labor excluded from the
law as class legislation, and the final bill, notwithstanding the em-

264

THE F.T.C. AND TRUST LEGISLATION

barrassed attempt of Gompers to find some concession in it to justify
six years of support for the Democrats, was also hailed by antilabor
elements.

The initial Trade Commission Bill was most unsatisfying to those
business elements that had long been interested in such legislation. On
the other hand, disunity among businessmen as to what type of legis-
lation was desirable became increasingly apparent during the spring of
1914, although the sentiment for some form of legislation was nearly
universal. Both the N.A.M. and the Chamber of Commerce split evenly
on the desirability of a strong trade commission with the power to pass
on proposed business actions. The N.A.M. convention, meeting in
May, decided to take no stand whatsoever, and failed to approve a
committee resolution condemning legislation. The Chamber of Com-
merce, on the other hand, began shifting its position, and it was appar-
ent that Charles R. Van Hise, hitherto only a minority voice on the
Chamber’s committee on trust legislation, spoke for a significant pro-
portion of the business community. In mid-April the Chamber sent a
referendum to its members on the extent and form of trade commis-
sion legislation, asking them to vote on the trust committee’s rec-
ommendations. On the creation of the commission and its power to
investigate, the members endorsed their committee’s positive recom-
mendations by overwhelming majorities. The committee’s refusal to
endorse commission powers to pass on the legality of proposed ac-
tions, however, was reversed by a vote of 307 to 306. Even before the
Chamber’s committee received the results of the referendum, however,
it moved to endorse the Clayton Bill in general, urging that legislation
be “expressed in terms of principles only,” but also favoring the pro-
hibition of interlocking directors and stock ownership lessening com-
petition. More significant was the committee’s focus on the Stevens
Bill, a hitherto obscure measure presented by Rep. Raymond B. Stev-
ens of New Hampshire that assumed that it would be the function of a
Federal Trade Commission to decide if a business’ actions violated the.
more general provisions of the antitrust laws. 11

The Stevens Bill was no coincidence. The Chamber’s trust com-
mittee included among its members George Rublee, an attorney who
had been in the Progressive Party and generally shared its trust orien-
tation. The Chamber’s committee held its first meetings in February,
1914, and Rublee was directly interested in the legislative history of
the various bills from that point on. Rublee knew Stevens and the

265

Congressman agreed to allow him to draft a bill that was introduced
on April 13. The Stevens Bill provided for a commission with powers
to issue cease and desist orders, subject to court review, where unfair
methods of competition were being utilized. The Stevens Bill, and the
general concept of a strong trade commission, had few supporters in
Congress, and its attraction was mainly to men like Rublee, Creigh,
and Van Hise. On June 5, as an illustration of its unformulated casual
attitude, the House passed the Covington Bill by a voice vote, defeat-
ing a motion to recommit by 151 to 19. No one was overly excited by
the weakness of the measure, save those circles that had long advo-
cated a trade commission as a means of giving business stability and
predictability.

At the beginning of June, Rublee, Stevens, Brandeis, and Charles
McCarthy went to see Wilson about the obscurity of the Clayton Bill,
pointing to the need for a stronger trade co mm ission to give it sub-
stance. The group’s comments managed to swing Wilson from his not-
too-firm position, and he indicated his willingness to see the heart of
the Stevens Bill incorporated into the Federal Trade Commission Bill
as Section 5. 12 Senator Newlands, always anxious to please and cer-
tainly no radical, responsed to Wilson’s new position by modifying his
Senate equivalent of the Covington Bill to include the heart of the
Stevens Bill. Despite some debate in the Senate on the meaning of un-
fair competition and the extent of judicial review, virtually everyone
agreed the amended Newlands Bill was an important advance, and on
August 5 it passed by 53 to 16.

The Clayton Bill, while the trade commission was being debated,
passed the House on .Tune 5 by a vote of 277 to 54, somewhat altered
to allow the F.T.C. and I.C.C. to have greater responsibility for its en-
forcement and to eliminate imprisonment and fines for certain viola-
tions. It was obvious that legislation was almost universally desired,
and the leaders of the small business organizations were especially
pleased with the steps that had been taken by July, even though a rec-
onciliation of the House and Senate Trade Commission Bills was still
months off. Wilson, for his part, moved to reassure business, if assur-
ance was needed, that the New Freedom could be trusted. Fie had, by
mid-1914, attained considerable insight into the economy, and he was
now able to evaluate the future needs of the nation in the light of re-
cent progress. Speaking to the Virginia Editorial Association on June
25 “as a friend of business and a servant of the country,” Wilson ap-

266

THE F.T.C. AND TRUST LEGISLATION

praised the larger problem faced by a democratic society in an age of
big business and industrialism. Perhaps it was once thought that Amer-
ica was ill and in need of progressive economic cures, but “as the diag-
nosis has progressed it has become more and more evident that no
capital operation is necessary; that at the most a min or operation was
necessary to remove admitted distempers and evils.” The tariff and
currency bills had been two minor operations, and the economy was
now undergoing another operation in the form of trust legislation. But
when this was completed “business can get and will get what it can get
in no other way — rest, recuperation, and successful adjustment.” 13

Thomas Creigh of the Chicago Association of Co mm erce felt dis-
appointed with the Trade Commission Bill and the even vaguer Clay-
ton Bill, and in mid-July he and a group of his Chicago associates
visited Wilson to discuss the entire legislative situation. They left Wash-
ington “feeling much encouraged,” thinking the “objectionable parts”
of the Clayton Bill would be dropped “and the Trade Commission
Bills strengthened, especially, in Section 5, so that it would more fully
embrace our ideas.” The Chicago group, with its belief in a strong
commission that could pass on the legality of business proposals, was
doubly reassured when Davies privately indicated to it that many of
its suggested changes would be made.

Davies’ consolation was significant, for it was the head of the Bu-
reau of Corporations, more than any other individual within the Ad-
ministration, that helped formulate the Trade Commission Bill. Besides
Wilson, he gave direction to the plastic Senator Newlands, the chief
figure in the Senate. This was as it should have been, since the com-
mission was to supersede the bureau. Davies, for his part, relied heav-
ily on the advice of interested business lawyers such as Rublee, Creigh,
and Gilbert H. Montague, the author of the Merchants’ Association of
New York’s commission plan and a friend of the Chicago Association
of Commerce’s proposals. Montague, along with Creigh, sent Davies
memoranda, letters, and proposals designed to strengthen the power of
a commission, and even to protect any future commission from broad
judicial review. Davies appreciated the assistance, and he used it in
keeping Wilson behind a strong commission position while the debates
on judicial review in Congress attracted attention during the summer.
Business lawyers told him that they did not want long litigation, Davies
assured Wilson, and that they preferred narrow judicial review. Al-
though we c ann ot expect everything in the first bill, Davies assured

267

Creigh, the efforts of the Chicago Association of Commerce “have pro-
cured so much a better bill than I thought would be possible at this
time ” 14

The Federal Trade Commission Bills of both the House and the
Senate remained in conference until early September, when they were
reconciled in favor of the Senate. The Senate passed the report 43 to
5, and the Act was signed by Wilson September 26. There was a mod-
erate broadening of judicial review in the compromise bill, the debate
over which historians have over exaggerated in importance; the final
vote in the Senate is an accurate gauge of the seriousness of the dis-
agreement. The Clayton Bill also passed through both branches with
large majorities. The Senate approved it in early September by a vote
of 46 to 16, over strong condemnation of its ineffectiveness by Western
Senators. The conference report was passed by the House in early Oc-
tober by a vote of 244 to 54, and Wilson signed the law on October 16.

The End of the
New Freedom

The Federal Trade Commission Act specified that a commission
of five was to be appointed by the President with the approval of the
Senate, with not more than three members from any party. “Unfair
methods of competition” were declared “unlawful,” and the commis-
sion was authorized to prevent them from being used. Upon calling a
hearing, the commission could issue “cease and desist” orders which
could be enforced by Circuit Courts. The commission might also com-
pel the production of information and utilize the power of subpoena,
with penalties for refusal to cooperate. The commission could gather
and issue information of a more general sort, and advise the Attorney
General on correcting illegal corporate actions. All in all, the Act was
vague and unclear, failed to exclude businessmen from membership
on the commission, and left a great area for free interpretation of the
law.

By comparison to the Clayton Act, however, the Federal Trade
Commission Act was a model of precision. It was the intention of
Congress to allow the commission and courts to settle most of the
vagueness in the Clayton Act, and no greater clarity in the antitrust

268

THE F.T.C. AND TRUST LEGISLATION

law was established. Price discrimination was forbidden, but with am-
ple “due allowances.” The Act also condemned tieing contracts to pre-
vent purchasers from buying from a company’s competitors if they
lessened competition. It forbade purchases of stock that reduced com-
petition and prohibited interlocking directorates among banks with
more than $5 million resources, between railroad directors or officers
and construction or maintenance companies with which they did a sub-
stantial business, and directors of competitive industries. The new Act
was most detailed in its specification of mechanical procedures for
cease and desist orders and appeal procedures. On the whole, it re-
flected the deep ambivalence of Congress on the topic of business
concentration. There were no means, needless to say, by which con-
centration could be reversed. Precedent was still the major criterion
for action, and precedents were to be defined by judicial and adminis-
trative bodies dominated by men who, in the last analysis, had little
more than their ideological commitments to guide them.

Although bankers disliked the interlock prohibitions, big business
as a whole was very pleased, to put it mildly, with the new state of
affairs. The provisions of the new laws attacking unfair competitors
and price discrimination meant that the government would now make
it possible for many trade associations to stabilize, for the first time,
prices within their industries, and to make effective oligopoly a new
phase of the economy. In part the new mood of confidence was a re-
sult of the President’s repeated assurances that he favored a conserva-
tive approach to business — a public statement on the need for greater
railroad profits on September 10 was only one of many examples —
and a realization that a Federal Trade Commission was to serve as a
stabilizing factor in the economy and a protector against public attacks.
The unions were no better off, despite Gompers’ effusive support of
the Clayton Act, and the last stone in the foundation of a comprehen-
sive political capitalism involving the banks, railroads, and industry
had been laid.

The new measures were quickly endorsed by the long-time ad-
vocates of federal regulation, with the exception of George W. Per-
kins, now more deeply motivated by political considerations. “. . . these
laws largely coincide with the principles we have urged,” the president
of the Chicago Association of Commerce telegraphed Wilson. “The
Democratic National Administration deserves unmistakable approval,”
Francis Lynde Stetson announced in mid-October. Arthur J. Eddy,

269

the architect of the trade association movement, also agreed that the
new laws were progressive and constructive. 15

What is truly significant about the passage of the two bills, how-
ever, is that it marked the conscious completion of the legislative objec-
tives of the New Freedom just at the very time that the most important
goals of business advocates of political capitalism were attained. In
late 1914 Wilson drew the line on reform, and reiterated innumerable
times his belief that federal regulation had gone far enough. In late
October Wilson began explicity formulating his retreat from legislative
action. “The situation is just this,” he wrote a friend: “the recon-
structive legislation which for the last two decades the opinion of the
country has demanded . . . has now been enacted. That program is
practically completed.” Further changes would have to await the end
of the European war and the experience of using the “instrumentali-
ties already created.” By mid-November Wilson was ready to make a
public statement of policy in a letter to McAdoo that was immediately
sent to the press.

Ten or twelve years ago the country was torn and excited by an agitation
which shook the very foundations of her political life, brought her busi-
ness ideals into question, condemned her social standards, denied the
honesty of her men of affairs, the integrity of her economic processes,
the morality and good faith of many of the things which her law
sustained.

Businessmen and politicians had been exposed to abuse, but any of
the evils that may have existed were now corrected, and all of the
older ideals and foundations were now being reasserted. “The spirit of
co-operation which your letter breathes is an example to all of us,”
Frank Trumbull, head of the Railway Executives Association, imme-
diately wrote Wilson. Stimulated by similar professions and the con-
gratulations of Davies and urgings of Tumulty, Wilson bid his final
farewell to the New Freedom in his Annual Message to Congress on
December 8. Appearing before a joint session, Wilson’s stand was
unequivocal :

Our program of legislation with regard to the regulation of business is
now virtually complete. It has been put forth, as we intended, as a whole,
and leaves no conjecture as to what is to follow. The road at last lies
clear and firm before business. It is a road which it can travel without
fear or embarrassment . 16

270

THE F.T.C, AND TRUST LEGISLATION

What the President ignored, of course, was that the road had never
been charted by him, and that the New Freedom, in its concrete legis-
lative aspects, was little more than the major demands of politically
oriented big businessmen. They had defined the issues, and it was they
who managed to provide the direction for change. If they did not
always manage to shape every detail of each reform measure, it was
only because, in a political democracy, legislative situations have their
own unpredictable, uncontrollable qualities. But in its larger outlines
it was they who gave progressivism its essential character. By the end
of 1914 they had triumphed, and to the extent that the new laws were
vague and subject to administrative definitions by boards and com-
missions, they were to totally dominate the extensive reign of political
capitalism that had been created in the United States by 1915.

The Commission
Defines the Law

A Federal Trade Commission had finally been created; it was an
unformed object guided only by vague legal prescriptions, to be shaped
by the President and his advisers as they saw fit. Given Wilson’s mood
at the end of 1914 and the beginning of 1915, however, there was
little question that the new organization would be amply conservative.
The reassuring statements of the President continued into 1915 and
were joined by those of Davies and others. “Nobody is henceforth
going to be afraid of or suspicious of any business merely because it is
big.” 17 The practical reflection of the new stage in the New Freedom
was the President’s choice of the members of the F.T.C. , the men with
the responsibility of determining the functional meaning of the new
law and setting the all-important precedents for the future.

It was only logical that Davies should be appointed the first chair-
man of the commission. Wilson appointed Edward N. Hurley of Chi-
cago vice-chairman. Hurley had aided Wilson’s political career in 1910
as an intermediary with the Democratic Party of New Jersey. Among
other things he was a manufacturer and the president of the Illinois
Manufacturers Association at the tim e of his appointment. William J.
Harris, a Georgia businessman, was also appointed, as was Will H.
Parry, former newspaperman and shipbuilder. It was only fitting that
Wilson consider Rublee, and since the former Progressive received the

271

endorsement of both Oswald Garrison Villard and the Chicago Asso-
ciation of Commerce, the President no m inated him. But Rublee had
once managed a campaign against Senator Jacob H. Gallinger in New
Hampshire, and the Senator, not one to forget, blocked his confirma-
tion in the Senate. Until the end of Congress, however, Rublee was
appointed to the co mmi ssion at the “pleasure of the President,” and
he served until September 8, 1916. Virtually the entire commission,
therefore, was composed of individuals with business backgrounds or
long pro-business records. The domination extended to even routine
jobs in the bureaucracy, and applicants were asked to present “letters
of endorsement from some good, sound businessmen.” 18

When the commission began defining its role in early 1915, there-
fore, it met in a general atmosphere of sympathy for business. More-
over, business was responding with enthusiasm. Hundreds of requests
for information and advice poured in from businessmen, and calls for
a maintenance of the era of good feelings came from all directions —
Frank Vanderlip, Senator Albert B. Cummins, the Illinois Manufac-
turers Association. The commission had the law to guide it, but the
law was vague. Commission members had their own views, and there
was also the opinion of business. From April through June, 1915, the
commission was to meet, debate, and consult outside advisers.

The mere existence of the commission served the obvious and val-
uable function as a buffer against public antagonism toward business,
but most of the earliest advocates of a commission had also conceived
of it as an agency that could give business legal advice and create pre-
dictability for their economic actions. The law quite explicitly avoided
stating such advice could or could not be given, but it was clearly the
intent of Congress not to include such a provision or to give the com-
mission the power. Davies, more than any other individual on the
commission, helped define future policy on this all-important question.
He had always believed that a commission would be quasi-judicial
and quasi-legislative as well as administrative in its functions. In addi-
tion to its explicit powers, he announced at the end of March, 1915,
the new commission would provide some definition of what business
could not do so that it might protect 99 per cent of business from the
unfair competition of one per cent. Davies was fully aware that the
law did not empower the F.T.C. to give advice, and he sought some
means or rationale by which it might do so, and even drew up an
amendment to the Act that was never submitted. Rublee, who was

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THE F.T.C. AND TRUST LEGISLATION

quite literal-minded in evaluating the law and could not find a con-
venient loophole, was very little assistance, and he and Parry concen-
trated on defining the F.T.C.’s functions in less complicated areas.
The members of the commission could not solve the problem them-
selves; in late April they were forced to resolve the dilemma. The
United Cigar Stores Company wrote the commission on April 20 about
a proposed acquisition and asked “to ascertain the attitude of your
Commission. . . .” 19 Perhaps only because it provided a convenient
way to avoid giving up the powers it desired, the commission at this
point decided to call on outside parties to help it attain its goal. Choice
of the outside parties determined the final decision. Arthur J. Eddy,
Victor Morawetz, Walker D. Hines, the railroad executive, Brandeis,
and Van Hise, the most important outside consultants, were not prone
to radicalism. Only Brandeis opposed the commission giving advice
on the legality of proposed acts.

It was Eddy who managed to provide the rationale sufficient to
get the commission to embark on a course without statutory warrant.
Section 5, the advocate of trade associations pointed out, required the
co mmi ssion to “prevent” unfair methods of competition. If a company
or association filed information on a proposed act, the commission
could file a complaint if it thought the suggestion illegal. The prin-
ciple, of course, had been suggested by Eddy only three years earlier,
and Davies adopted the approach almost immediately. Rublee alone
seemed to have some qualms about the legal basis of the decision, but
the commission resolved to give rulings because, as Davies put it,
“what men needed largely in the business world was not the menace
of legal process, but some definite guidance and some information —
some help.” 20 At the end of June the commission adopted a plan of or-
ganization for its future work, and “conference rulings” were accepted
as one of its key tasks. The structure of the commission was outlined
along with its functions, not the least of which was to be the collection
of statistics and information designed to help business. But it was the
conference ruling decision that was of crucial value to business, and by
the end of its first year the commission had issued forty-eight such rul-
ings, and although they were not regarded as “conclusive,” they could
“be regarded as precedents in so far as they are applicable in proceed-
ings before the Commission.” At the same time the commission ini-
tiated a program of disposing of many of its incoming complaints
through informal proceedings, “avoiding ill-founded prosecutions.” 21

This crucial interpretation of the function of the commission met

273

with no opposition in Congress, and with only enthusiasm from busi-
ness. Wilson accepted the shift entirely, and, along with the commis-
sion itself, misstated the original purpose of the law. “. . . the Federal
Trade Commission was established,” he declared in July, 1916, “so
I that men would have some place where they could take counsel as to
what the law was and what the law permitted. . . .” The commission
j consistently regarded the new policy as inherent in the law. Its ruling
and decisions, in addition to being designed “to promote business effi-
ciency and ... to co-operate with the business world in developing the
best standards of commercial ethics,” by 1919 were described as “fur-
nishing that ‘definite guidance and information’ which the President
and the Congress had in view in the establishment of the Federal
Trade Commission, by the gradual working out of a code of business
law.” 22

The response of business, quite predictably, was even more enthu-
siastic, and the cordial relationship between the commission and busi-
ness became a virtual honeymoon of mutual praise. As Davies put it at
the outset, “There is a great opportunity for this new agency in gov-
ernment to be of practical aid to the business of this country. That is,
indeed, one of the purposes for which it was created. . . Of all the
important business groups, only the N.A.M. stood off, neither attack-
ing nor praising the F.T.C. But it stood alone. "... I found the mem-
| bers of the commission most cordial and not only willing but anxious
to exercise their fullest powers to aid and assist business rather than to
hinder and oppose it,” one executive reported. The formation of a
commission, the bulletin of the brokerage house Clark, Childs & Co.
announced in May, “has taken some of the sharpest teeth out of the
jaws of the Sherman Law. . . . The new Commission seems to be run
with the main idea of helping business. . . .” It settled, for example,
ninety-nine out of one hundred complaints with private, nonsensa-
tional conferences. “This is the most satisfactory development of the
relation of the Administration to business that has developed in many
years, and it will soon mean much to our stock market in freedom
from fear of sensational attack.” 23

Business enthusiasm and support, of which the commission was
fully aware and proud, centered increasingly on the dynamic activities
of Hurley. Davies, nominally the head of the commission, shifted his
focus from economic matters to foreign crises as Wilson became more
concerned with foreign affairs, and vice-chairman Hurley shaped the
larger program of the commission during late 1915 and 1916. Hurley

274

THE F.T.C. AND TRUST LEGISLATION

wished to service business with information on standardized book-
keeping, cost accounts, and credit systems. Such money-saving pro-
posals especially struck the imagination of smaller businessmen, even
though the commission’s guides on the topic, which went through
giant printings of 350,000 by the end of 1916, were also directed
to manufacturers. This enthusiasm by business was maintained by
Hurley’s aggressive cultivation of the business community through a
barrage of speeches and press releases.

The business response to Hurley was nothing short of overwhelm-
ing, and many hundreds of letters of praise arrived in the commis-
sion’s office throughout 1915 and 1916. Their enthusiasm was due not
merely to Hurley’s fine sense of public relations, but to the remarkable
content of his speeches. “Through a period of years the government
has been gradually extending its machinery of helpfulness to different
classes and groups upon whose prosperity depends in a large degree
the prosperity of the country,” Hurley told the Association of Na-
tional Advertisers in December, 1915. The railroads and shippers had
the I.C.C., the bankers the Reserve Board, the farmers the Agriculture
Department. “To do for general business that which these other agen-
cies do for the groups to which I have referred was the thought behind
the creation of the trade commission.” This total identification of the
F.T.C. with business was, on Hurley’s part, quite conscious. More im-
portant, he was able to obtain the complete support of Wilson for his
position, and Wilson relied heavily on Hurley for guidance on his re-
lations to business throughout 1916. Indeed, by May, 1916, Hurley
was drafting some of Wilson’s important statements on general eco-
nomic affairs, including an endorsement of the work of the F.T.C.
under Hurley. 24 In June, 1916, Davies resigned from the commission
and Hurley, with strong business support, was chosen as chairman.

Was Wilson fully aware of the deep commitment of Hurley to bus-
iness? All of the evidence indicates he was, and Hurley, too, claimed
it. Speaking informally to the National Industrial Conference Board
in July, 1916, the new chairman, in a remarkably frank address, freely
revealed his own feelings and those, he claimed, of Wilson :

I am glad to meet with a body of businessmen like you gentlemen, and
I will plead guilty on the start by saying that I do not know anything
about the law, and that applies to the Clayton act and to the Federal
Trade Commission act. In my position on the Federal Trade Commission
I am there as a business man. I do not mind telling you that when I was

275

offered the place I told the President that all I knew was business, that
I knew nothing about the new laws nor the old ones, and that I would
apply the force that I might have in the interest of business. I have been
there since the sixteenth of March last year, and I think that the business
men of the country will bear me out when I say that I try to work wholly
in the interest of business. 25

The enthusiasm within business circles for Hurley extended be-
yond the smaller business groups that benefited most from his cost and
efficiency publications. Big business also responded positively to the
commission, whose functions conformed to those outlined by its vari-
ous spokesmen as early as 1907. The special attraction of the commis-
sion, and Wilson, to larger businessmen, however, was its position on
trade associations in general and export trade associations in particu-
lar. The advantages of trade associations formed for domestic pur-
poses were clear — the maintenance of prices and the elimination of
internecine competition. Such associations were organized in abun-
dance from 1912 on, but their legal status on issues of price controls
and market divisions had never been thoroughly tested. The pressure
to legalize them, on the other hand, was not great. Small retail busi-
ness was more interested than big business in the legalization of fair
trade pricing, and although businesses of every size generally favored
such a law, no real movement for its passage ever was created.

Wilson and Hurley regarded trade associations with favor, and the
trade associations respected the commission as a friend. The preven-
tion of price cutting was commended by Brandeis and Davies, and
Wilson, with Hurley’s prodding, publicly stated in May, 1916, “that
trade associations . . . and other similar organizations should be en-
couraged in every feasible way. . . ,” 26 llie real support of the Ad-
ministration for the trade association movement came in the area of
export associations. During the final days before the passage of the
Trade Commission Act, both Davies and Secretary of Commerce Wil-
liam Redfield tried to have the bill amended to allow the commission
to supervise export associations, but Wilson, although sympathetic,
thought it better to make the change later. Wilson, ostensibly to help
smaller businesses, took the position in early 1915 that “a method of
cooperation which is not a method of combination” would be most ad-
vantageous “in taking advantage of the opportunities of foreign trade.”
The President was strident on this issue until American entry into the
war, when all bounds on business were removed. Domestic markets

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THE F.T.C. AND TRUST LEGISLATION

were no longer sufficient for our economic development, he told a
business convention in September, 1916, and the Federal Reserve Act,
with its provisions for foreign branch banking, had truly prepared us
for the world market. “Not only when this war is over, but now,
America has her place in the . . . world of finance and commerce upon
a scale that she never dreamed of before.” “There is only one thing
I have ever been ashamed of in America,” Wilson, in a moment of
satisfaction, declared, “and that was the timidity and fearfulness of
Americans in the presence of foreign competitors.” 27

The commission’s work on accounting and cost systems was
equaled only by its concern for supporting the formation of export
trade associations. By the end of its first year of operation the com-
mission had ten specific investigations under way. The motives for in-
vestigating domestic industries were not at all hostile to the industries
concerned. “We are making an inquiry into the coal industry today,”
Hurley announced, “with the hope that we can recommend to Con-
gress some legislation that will allow them to combine and fix prices.”
Such impulses were hardly calculated to cause anxiety to an industry
that for years had demanded just such rights. More significant is the
fact that the first two inquiries completed dealt with export trade
associations and the problems of South American trade. Ever since
its formation, the commission favored a law to explicitly allow trade
associations to be created. “The Commission does not believe that
Congress intended by the antitrust laws to prevent Americans from
cooperating in export trade for the purpose of competing effectively
with foreigners, where such cooperation does not restrain trade within
the United States. . . .” So long as such a law was not on the record,
they claimed, potential exporters would be discouraged for fear of
possible attack. The F.T.C. , for these reasons, consistently supported
the passage of the Webb Bill to allow export trade associations to op-
erate and companies to acquire firms exclusively in the export business.
Given Wilson’s endorsement of the bill in December, 1916, industry
pressure, and even occasional reminders by Perkins and others that
Germany had become a great power because it was “taking care of her
business interests” in seeking foreign trade, the passage of the Webb-
Pomerene Act in April, 1918, was inevitable. 28

The Democratic platform in 1916 was eminently conservative on
the issue of “economic freedom.” The reforms required to eliminate
economic discrimination had been effected, and, for the future, the

277

party pledged itself to “remove, as far as possible, every remaining
element of unrest and uncertainty from the path of the businessmen of
America, and secure for them a continued period of quiet, assured
and confident prosperity.” If there ever was a party plank intended to
reflect the serious desires of the party, this was it.

So far as the larger issue of the relationship of business to govern-
ment was concerned, the plank perfectly mirrored the new era of po-
litical capitalism and the New Freedom. Wilson was ready to accept
the advice and direction of Hurley in handling the business commu-
nity and the issues that had once figured so prominently in the cam-
paign of 1912. Hurley reproduced Wilson’s May 12, 1916, letter to
him, which Hurley had really written, and reminded businessmen dur-
ing September, 1916, that a President who endorsed the F.T.C. and
the trade association movement was “a safe and sound man for the
business interests of the country to champion.” George Perkins, ac-
tively working for Charles Evans Hughes, might attack the commis-
sion as being vague, but businessmen knew better. The American Fair
Trade League could condemn Perkins’ verdict, and it was joined by
other powerful business groups. The Federal Trade Commission, Wil-
son announced on September 25, “has transformed the Government
of the United States from being an antagonist of business into being a
friend of business.” 20 Wilson was overly modest in his description of
the situation.

Had Hurley remained with the F.T.C., his influence over Wilson
would have continued, if not grown. In January, 1917, Hurley re-
signed “On account of certain large plant improvements requiring per-
sonal attention to my business affairs. . . .” Wilson regretfully accepted
the resignation. The war was to keep the President occupied. The
process of meeting the demands presented by that epic struggle made
the traditional relationship of the federal government to business
even more intimate. The F.T.C. was, very briefly, to waver from its
safe, reliable path after the war, but its subsequent history and role
did not disappoint the hopes and expectations of business. 30 Its suc-
cess in this regard was due not so much to its structure and personnel
as to the basic ideological assumptions and goals of the political ma-
chinery within which it existed. Its conservatism reflected the mandate
from the President.

Bureaucracies have frequently determined conditions of political
and economic development in a seemingly “nonpartisan" manner that

278

THE F.T.C. AND TRUST LEGISLATION

has perpetuated a set of relationships and actions which were, in them-
selves, based on policy commitments with no formal affinity to those
verbally accepted by the society around them. Such was not the prob-
lem, however, in the case of the Federal Trade Commission. The ad-
ministrative outcome of the New Freedom was the logical conclusion
of the premises of its initiators. The business community knew what
it wanted from the commission, and what it wanted was almost pre-
cisely what the commission sought to do. No distinction between gov-
ernment and business was possible simply because the commission
absorbed and reflected the predominant values of the business com-
munity. The platitudes and boosterism of Davies and Hurley were, in
the final analysis, based on their deep commitment to the political
capitalism that triumphed under the New Freedom. Wilson interacted
with them, accepted their initiatives, and provided his own. The views
and desires of Wilson and business were virtually identical.

CONCLUSION:

THE

LOST

DEMOCRACY

the American political experience during the Progressive Era
was conservative, and this conservatism profoundly influenced Amer-
ican society’s response to the problems of industrialism. The nature
of the economic process in the United States, and the peculiar cast
within which industrialism was molded, can only be understood by
examining the political structure. Progressive politics is complex
when studied in all of its aspects, but its dominant tendency on the
federal level was to functionally create, in a piecemeal and hap-
hazard way that was later made more comprehensive, the synthesis
of politics and economics I have labeled “political capitalism.”

The varieties of rhetoric associated with progressivism were as
diverse as its followers, and one form of this rhetoric involved at-
tacks on businessmen — attacks that were often framed in a fashion
that has been misunderstood by historians as being radical. But at
no point did any major political tendency dealing with the problem
of big business in modern society ever try to go beyond the level of
high generalization and translate theory into concrete economic pro-
grams that would conflict in a fundamental way with business su-

279

280

THE LOST DEMOCRACY

premacy over the control of wealth. It was not a coincidence that the
results of progressivism were precisely what many major business
interests desired.

Ultimately businessmen defined the limits of political interven-
tion, and specified its major form and thrust. They were able to do so
not merely because they were among the major initiators of federal
intervention in the economy, but primarily because no politically
significant group during the Progressive Era really challenged their
conception of political intervention. The basic fact of the Progressive
Era was the large area of consensus and unity among key business
leaders and most political factions on the role of the federal govern-
ment in the economy. There were disagreements, of course, but not
on fundamentals. The overwhelming majorities on votes for basic
progressive legislation is testimony to the near unanimity in Congress
on basic issues.

Indeed, an evaluation of the Progressive Era must concede a
much larger importance to the role of Congress than has hitherto
been granted by historians who have focused primarily on the more
dramatic Presidents. Congress was the pivot of agitation for banking
reform while Roosevelt tried to evade the issue, and it was consid-
ering trade commissions well before Wilson was elected. Meat and
pure food agitation concentrated on Congress, and most of the vari-
ous reform proposals originated there. More often than not, the
various Presidents evaded a serious consideration of issues until Con-
gressional initiatives forced them to articulate a position. And busi-
nessmen seeking reforms often found a sympathetic response among
the members of the House and Senate long before Presidents would
listen to them. This was particularly true of Roosevelt, who would
have done much less than he did were it not for the prodding of
Congress. Presidents are preoccupied with patronage to an extent
unappreciated by anyone who has not read their letters.

The Presidents, considered — as they must be — as actors rather
than ideologists, hardly threatened to undermine the existing con-
trollers of economic power. With the possible exception of Taft’s
Wickersham, none of the major appointees to key executive posts
dealing with economic affairs were men likely to frustrate business
in its desire to use the federal government to strengthen its economic
position. Garfield, Root, Knox, Straus — these men were important
and sympathetic pipelines to the President, and gave additional secu-

281

rity to businessmen who did not misread what Roosevelt was trying
to say in his public utterances. Taft, of course, broke the continuity
between the Roosevelt and Wilson Administrations because of politi-
cal decisions that had nothing to do with Iris acceptance of the same
economic theory that Roosevelt believed in. The elaborate relation-
ship between business and the Executive created under Roosevelt was
unintentionally destroyed because of Taft’s desire to control the
Republican Party. Wilson’s appointees were quite as satisfactory as
Roosevelt’s, so far as big business was concerned, and in his con-
crete implementation of the fruits of their poliucal agitadon — the
Federal Reserve Act and the Federal Trade Co mmi ssion Act — Wil-
son proved himself to be perhaps the most responsive and desirable
to business of the three Presidents. Certainly it must be concluded
that historians have overemphasized the basic differences between
the Presidents of the Progressive Era, and ignored their much more
important similarities. In 1912 the specific utterances and programs
of all three were identical on fundamentals, and party platforms re-
flected this common agreement.

This essential unanimity extended to the area of ideologies and
values, where differences between the Presidents were largely of the
sort contrived by politicians in search of votes, or seeking to create
useful images. None of the Presidents had a distinct consciousness
of any fundamental conflict between their political goals and those
of business. Roosevelt and Wilson especially appreciated the signifi-
cant support business gave to their reforms, but it was left to Wilson
to culminate the decade or more of agitation by providing precise
direction to the administration of political capitalism’s most impor-
tant consequences in the Progressive Era. Wilson had a small but
articulate band of followers who seriously desired to reverse the proc-
ess of industrial centralization — Bryan and the Midwestern agrarians
reflected this tradition more than any other group. Yet ultimately
he relegated such dissidents to a secondary position — indeed, Wilson
himself represented the triumph of Eastern Democracy over Bryan-
ism — and they were able to influence only a clause or amendment,
here and there, in the basic legislative structure of political capi-
talism.

But even had they been more powerful, it is debatable how differ-
ent Bryanism would have been. Bryan saw the incompatibility be-
tween giant corporate capitalism and political democracy, but he

282

THE LOST DEMOCRACY

sought to save democracy by saving, or restoring, a sort of idealized
competitive capitalist economy which was by this time incapable of
realization or restoration, and was in any event not advocated by
capitalists or political leaders with more power than the agrarians
could marshal. Brandeis, for his part, was bound by enigmas in this
period. Big business, to him, was something to be ultimately rejected
or justified on the basis of efficiency rather than power accumulation.
He tried to apply such technical criteria where none was really
relevant, and he overlooked the fact that even where efficient or
competitive, business could still pose irreconcilable challenges to the
political and social fabric of a democratic community. Indeed, he
failed to appreciate the extent to which it was competition that was
leading to business agitation for federal regulation, and finally he
was unable to do much more than sanction Wilson’s actions as they
were defined and directed by others.

There was no conspiracy during the Progressive Eira. It is, of
course, a fact that people and agencies acted out of public sight, and
that official statements frequently had little to do with operational
realities. But the imputation of a conspiracy would sidetrack a seri-
ous consideration of progressivism. There was a basic consensus
among political and business leaders as to what was the public good,
and no one had to be cajoled in a sinister manner. If detentes, private
understandings, and the like were not publicly proclaimed it was
merely because such agreements were exceptional and, generally
known, could not have been denied to other business interests also
desiring the security they provided. Such activities required a delicate
sense of public relations, since there was always a public ready to
oppose preferential treatment for special businesses, if not the basic
assumptions behind such arrangements.

Certainly there was nothing surreptitious about the desire of cer-
tain businessmen for reforms, a desire that was frequently and pub-
licly proclaimed, although the motives behind it were not appreciated
by historians and although most contemporaries were unaware of
how reforms were implemented after they were enacted. The fact
that federal regulation of the economy was conservative in its effect
in preserving existing power and economic relations in society should
not obscure the fact that federal intervention in the economy was
conservative in purpose as well. This ambition was publicly pro-
claimed by the interested business forces, and was hardly conspira-
torial.

283

It is the intent of crucial business groups, and the structural cir-
cumstances within the economy that motivated them, that were the
truly significant and unique aspects of the Progressive Era. The
effects of the legislation were only the logical conclusion of the in-
tentions behind it. The ideological consensus among key business and
political leaders fed into a stream of common action, action that was
sometimes stimulated by different specific goals but which neverthe-
less achieved the same results. Political leaders, such as Roosevelt,
Wilson, and their key appointees, held that it was proper for an
industry to have a decisive voice or veto over the regulatory process
wi thin its sphere of interest, and such assumptions filled many key
businessmen with confidence in the essential reliability of the federal
political mechanism, especially when it was contrasted to the unpre-
dictability of state legislatures.

Business opposition, to various federal legislative proposals and
measures did exist, of course, especially if one focuses on opposition
to particular clauses in specific bills. Such opposition, as in the case
of the Federal Reserve Bill, was frequently designed to obtain spe-
cial concessions. It should not be allowed to obscure the more im-
portant fact that the essential purpose and goal of any measure of
importance in the Progressive Era was not merely endorsed by key
representatives of businesses involved; rather such bills were first
proposed by them.

One can always find some businessman, of course, who opposed
federal regulation at any point, including within his own industry.
Historians have relished in detailing such opposition, and, indeed,
their larger analysis of the period has encouraged such revelations.
But the finding of division in the ranks of business can be significant
only if one makes the false assumption of a monolithic common in-
terest among all capitalists, but, worse yet, assumes that there is no
power center among capitalists, and that small-town bankers or hard-
ware dealers can be equated with the leaders of the top industrial,
financial, and railroad corporations. They can be equated, of course,
if all one studies is the bulk of printed words. But in the political
as well as in the economic competition between small and big busi-
ness, the larger interests always managed to prevail in any specific
contest. The rise of the National Association of Manufacturers in
the Progressive Era is due to its antilabor position, and not to its
opposition to federal regulation, which it voiced only after the First
World War. In fact, crucial big business support could be found for

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every major federal regulatory movement, and frequent small busi-
ness support could be found for any variety of proposals to their
benefit, such as price-fixing and legalized trade associations. Pro-
gressivism was not the triumph of small business over the trusts, as
has often been suggested, but the victory of big businesses in achiev-
ing the rationalization of the economy that only the federal govern-
ment could provide.

Still, the rise of the N.A.M. among businessmen in both pro- and
anti-regulation camps only reinforces the fact that the relationship
of capitalists to the remainder of society was essentially unaltered by
their divisions on federal intervention in the economy. In terms of
the basic class structure, and the conditions of interclass relation-
ships, big and small business alike were hostile to a labor movement
interested in something more than paternalism and inequality. In this
respect, and in their opposition or indifference to the very minimal
social welfare reforms of the Progressive Era (nearly all of which
were enacted in the states), American capitalism in the Progressive
Era acted in the conservative fashion traditionally ascribed to it. The
result was federal regulation in the context of a class society. Indeed,
because the national political leadership of the Progressive Period
shared this noblesse oblige and conservatism toward workers and
fanners, it can be really said that there was federal regulation be-
cause there was a class society, and political leaders identified with
the values and supremacy of business.

This identification of political and key business leaders with the
same set of social values — ultimately class values — was hardly acci-
dental, for had such a consensus not existed the creation of political
capitalism would have been most unlikely. Political capitalism was
based on the functional unity of major political and business leaders.
The business and political elites knew each other, went to the same
schools, belonged to the same clubs, married into the same families,
shared the same values — in reality, formed that phenomenon which
has lately been dubbed The Establishment. Garfield and Stetson met
at Williams alumni functions. Rockefeller, Jr. married Aldrich’s daugh-
ter, the Harvard clubmen always found the White House door open
to them when Roosevelt was there, and so on. Indeed, no one who
reads Jonathan Daniels’ remarkable autobiography, The End of In-
nocence, can fail to realize the significance of an interlocking social,
economic, and political elite in American history in this century.

285

The existence of an Establishment during the Progressive Era
was convenient, even essential, to the functional attainment of politi-
cal capitalism, but it certainly was not altogether new in American
history, and certainly had antecedents in the 1890’s. The basic causal
factor behind national progressivism was the needs of business and
financial elements. To some extent, however, the more benign char-
acter of many leading business leaders, especially those with safe
fortunes, was due to the more secure, mellowed characteristics and
paternalism frequently associated with the social elite. Any number
of successful capitalists had long family traditions of social graces
and refinement which they privately doubted were fully compatible
with their role as capitalists. The desire for a stabilized, rationalized
political capitalism was fed by this current in big business ideology,
and gave many businessmen that air of responsibility and con-
servatism so admired by Roosevelt and Wilson. And, from a prac-
tical viewpoint, the cruder economic conditions could also lead to
substantial losses. Men who were making fortunes with existing
shares of the market preferred holding on to what they had rather
than establishing control over an industry, or risking much of what
they already possessed. Political stabilization seemed proper for this
reason as well. It allowed men to relax, to hope that crises might be
avoided, to enjoy the bountiful fortunes they had already made.

Not only were economic losses possible in an unregulated capi-
talism, but political destruction also appeared quite possible. There
were disturbing gropings ever since the end of the Civil War; agrar-
ian discontent, violence and strikes, a Populist movement, the rise
of a Socialist Party that seemed, for a time, to have an unlimited
growth potential. Above all, there was a labor movement seriously
divided as to its proper course, and threatening to follow in the seem-
ingly radical footsteps of European labor. The political capitalism
of the Progressive Era was designed to meet these potential threats,
as well as the immediate expressions of democratic discontent in the
states. National progressivism was able to short-circuit state progres-
sivism, to hold nascent radicalism in check by feeding the illusions
of its leaders — leaders who could not tell the difference between
federal regulation of business and federal regulation for business.

Political capitalism in America redirected the radical potential
of mass grievances and aspirations — of genuine progressivism — and

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to a limited extent colored much of the intellectual ferment of the
period, even though the amorphous nature of mass aspirations
frequently made the goals of business and the rest of the public
nearly synonymous. Many well-intentioned writers and academicians
worked for the same legislative goals as businessmen, but their inno
cence did not alter the fact that such measures were frequently
designed by businessmen to serve business ends, and that business
ultimately reaped the harvest of positive results. Such innocence was
possible because of a naive, axiomatic view that government eco
nomic regulation, per se, was desirable, and also because many
ignored crucial business support for such measures by focusing on
the less important business opposition that existed. The fetish of
government regulation of the economy as a positive social good was
one that sidetracked a substantial portion of European socialism as
well, and was not unique to the American experience. Such axiomatic
and simplistic assumptions of what federal regulation would bring
did not take into account problems of democratic control and par-
ticipation, and in effect assumed that the power of government was
neutral and socially beneficent. Yet many of the leading muckrakers
and academics of the period were more than naive but ultimately
conservative in their intentions as well. They sought the paternalism
and stability which they expected political capitalism to bring, since
only in this way could the basic virtues of capitalism be maintained.
The betrayal of liberalism that has preoccupied some intellectual
historians did not result from irrelevant utopianism or philosophical
pragmatism, but from the lack of a truly radical, articulated alterna-
tive economic and political program capable of synthesizing political
democracy with industrial reality. Such a program was never formu-
lated in this period either in America or Europe.

Historians have continually tried to explain the seemingly sudden
collapse of progressivism after the First World War, and have offered
reasons that varied from moral exhaustion to the repression of non-
conformity. On the whole, all explanations suffer because they really
fail to examine progressivism beyond the favorable conventional
interpretation. Progressive goals, on the concrete, legislative level,
were articulated by various business interests. These goals were, for
the most part, achieved, and no one formulated others that big busi-
ness was also interested in attaining. Yet a synthesis of business and

287

politics on the federal level was created during the war, in various
administrative and emergency agencies, that continued throughout
the following decade. Indeed, the war period represents the triumph
of business in the most emphatic manner possible. With the excep-
tion of a brief interlude in the history of the Federal Trade Com-
mission, big business gained total support from the various regulatory
agencies and the Executive. It was during the war that effective,
working oligopoly and price and market agreements became opera-
tional in the dominant sectors of the Am erican economy. The rapid
diffusion of power in the economy and relatively easy entry virtually
ceased. Despite the cessation of important new legislative enact-
ments, the unity of business and the federal government continued
throughout the 1920’s and thereafter, using the foundations laid in
the Progressive Era to stabilize and consolidate conditions within
various industries. And, on the same progressive foundations and
exploiting the experience with the war agencies, Herbert Hoover and
Franklin Roosevelt later formulated programs for saving American
capitalism. The principle of utilizing the federal government to stabi-
lize the economy, established in the context of modem industrialism
during the Progressive Era, became the basis of political capitalism
in its many later ramifications.

In this sense progressivism did not die in the 1 920’s, but became
a part of the basic fabric of American society. The different shapes
political capitalism has taken since 1916 deserve a separate treat-
ment, but suffice it to say that even Calvin Coolidge did not mind
evoking the heritage of Theodore Roosevelt, and Hoover was, if any-
thing, deeply devoted to the Wilsonian tradition in which Franklin
Roosevelt gained his first political experience.

Marx and Weber:

Economics vs. Politics

What, then, can one say about the larger nature of the phenom-
enon of political capitalism in America? Certainly, if one looks at
the formal traditions of economic and political theory there is little
to be found that takes the American experience into account. For
better or worse, the relationship of politics and the state to economic

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THE LOST DEMOCRACY

and social theory is a vast, uncharted region in the arena of going
theories. This is not to say that theory has failed to develop a con-
cept of politics and the state, but that none of them apply to the
American situation. Classical economics, for example, offered little
guidance. Adam Smith had a much more permissive concept of the
state than is usually attributed to him, but his theory of accumulation
was based on parsimony rather than state favors. The state was cor-
rupt, to be conceded as little as possible, but necessary insofar as
the maintenance of social order and property relations was con-
cerned. The Wealth of Nations did not explain why the state was
crucial to capitalism, and merety postulated a set of conditions Smith
hoped could be implemented rather than describing or predicting a
much more complicated historical reality. And insofar as Smith did
believe the state was crucial to preserve social relations in their exist-
ing form, his utilitarian followers developed the same tradition in
their advocacy of a centralized political administration capable of
protecting the property of the rich against the poor. None of the
subsequent major capitalist economic theorists ever tried to develop
a comprehensive operational view of the integration of economics and
politics. Descriptively, Keynesian analysis is based on the same sepa-
ration of economic law and political reality which dominates classical,
theory, and Keynes never really examined the extent and form of
state intervention into the economy. And the more technical spe-
cialized studies of imperfect competition and oligopoly have ignored
the political consequences of this phenomenon on behalf of purely
internal economic descriptions.

Yet there are several theoretical efforts dealing with politics, eco-
nomics, or social relations that are worth considering here, if only
because their deficiencies allow one to point more precisely to those
areas where a theoretical synthesis of the American political and
economic experience is necessary and possible. Despite their inade-
quacies, Marx, Max Weber, and Thorstein Veblen were concerned
with genuine problems, and in this age of inconspicuous specialization
in the social sciences the scope of their interests alone mark them as
exceptional thinkers. Their errors can be cited, but there is, after all
is said and done, something of significance worth criticizing.

Marx formulated an economic theory that was to have implica-
tions to social relations and politics, but he relied on purely economic

289

categories of explanation. Indeed, although Marx the revolutionist
was interested in economics only insofar as it had political impli-
cations, his economic theory is his only complete one and, for this
reason, American development cannot be understood within the
Marxist mold. This is not to say that Marxian economics is not use-
ful for imder standing specific situations, but the American experience
extends well beyond Marx’ economic categories, and his political
theory is entirely inadequate. However much one can respect Marx’
insights into the role of technology in economic history, or his in-
tense co mmitm ent to a never clearly defined goal of social justice,
the history of the past century does not readily allow one to share his
mechanistic faith in tendencies in technology and economics that
would develop those internal contradictions in capitalism that would
lead to a better world for workers.

There is no point in an exposition of Marx’s economics per se,
given the excellent critical analysis that has been done by Paul Mat-
tick and others . 1 Only several of his economic ideas need be men-
tioned. Although Marx believed moderate adjustments were possible,
he strongly felt that society “can neither clear by bold leaps, nor
remove by legal enactments, the obstacles offered by the successive
phases of its normal development .” 2 This position led to what must
be considered the “original sin” of Marxism — the acceptance and
justification of the boundaries imposed by capitalism on the indus-
trialization process. It was not necessary for Marx to argue that tech-
nology as such made centralization and monopoly inevitable, but
merely that there were certain tendencies within capitalist economics
which, combined with technology, stimulated a movement in that
direction. Worse yet, Marx made capitalism the prerequisite to indus-
trialization, thereby becoming an unwilling apologist for the necessity
of the system. Engels carried this argument the furthest in his attacks
on utopian socialism.

Despite complications, Marx believed that the long-term tend-
ency in capitalism was toward centralization and monopoly, a tend-
ency stimulated by the utilization of new and better technology in
the competitive economy. This centralization was crucial, and a part
of a “progressive” development that was unavoidable and desirable,
since “Modern Industry never looks upon and treats the existing
form of a process as final .” 3 It was the existence of such monopolies
that would make capitalism ripe for expropriation. Marx did not

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THE LOST DEMOCRACY

anticipate any noneconomic intervention in the concentration process
before it ended, and Ms analysis was based on the assumption that
there were tendencies within the economy about which one could do
nothing. Marx could condemn the injustice and misery wMch re-
sulted from the industrialization through which he was living only
because he was personally sensitive to suffering. His theory, as such,
made such developments, in one form or another, necessary. More-
over, Marx made all of the facile assumptions as to size and efficiency
that later became central in the writings of capitalist apologists. Marx
saw total centralization as the conclusion of the capitalist economic
process, and he had no intermediate theory of the nature of prices
and competition in what is now referred to as an oligopolistic market
in which the total economic victory of one large competitor over
another is extraordinarily difficult. In this context, both Marxian and
classical theories were thoroughly irrelevant as an explanation of the
nature of the economic process. Neither could explain collusion based
on solidarity among capitalists and a rationalized pursual of mutual
interests and profits. In the American context, Marx was wrong in
predicting that an ever smaller number of capitalists would share the
market, for the rapid growth of the market and continuous techno-
logical innovations kept the economy sufficiently fluid to require the
intervention of something more decisive than long-term impersonal
natural economic processes.

Marx and Engels never formulated a comprehensive political the-
ory. But such a system would not have made much difference to
them in any event, since the entire theory of dynamics in Marxism
is defined in purely economic terms. It was their failure to discuss
the potential role of the state and politics in preserving capitalism
that is the really fundamental reason why Marxism is not too useful
in comprehending recent American history.

Marx and Engels applied inconsistent definitions of the state.
They usually referred to it as the instrument of the ruling class, but
the interpretation of the state as an independent, classless entity was
used in certain crucial spots, and at times they mixed both defini-
tions. The political element in Marxist economic theory, as opposed
to commentaries on current events, is much more clearly defined.
Marxian economics is a theory of circulation, accumulation, crises,
and, ultimately, social relations. It is political only in the implicit

291

sense that Marx believed economic developments would ultimately
have social and political repercussions. But his theory of economic
development, save in one particular, is primarily nonpolitical in its
dynamic elements. Marx’ political writings were intended for prac-
tical agitational purposes; his economic theory was self-sufficient and
the state was not regarded as a means of preserving or enlarging eco-
nomic power.

Historically, prior to the development of the modern economy in
which capital was taken primarily from surplus value created by
labor, Marx regarded the earliest capital accumulation — the stage of
“primitive accumulation” — as dependent on political and essentially
noneconomic factors of force and power. In the breakup of feudal
society the land of the agricultural producer was expropriated, and
this “is the basis of the whole process” of accumulation. Naked force
was used first of all, but the Enclosure Acts in the eighteenth century
were the political legitimization of robbery. The result was a free
proletariat for nascent capitalists to exploit, and with which to ini-
tiate a process of accumulation based on surplus value. The political
basis of primitive accumulation was also apparent in colonialism, as
well as the public debt and mercantilist system. And although Marx
cited numerous examples that should have caused him to modify this
point — the English Banking Act of 1844, for example — he neverthe-
less maintained that “In Western Europe, the home of political econ-
omy, the process of primitive accumulation is more or less accom-
plished.” 4

Although Marxist theory relied on purely economic categories
of explanation, Marx was confronted with any number of political
incidents during his lifetime — the creation of maximum hour laws,
child labor laws, and similar measures in England and France — that
forced him to try to reconcile these events with his theory, and in
the process of doing so he formulated several inconsistent theories of
the state. When discussing the English Factory Acts “made by a
state that is ruled by capitalist and landlord,” Marx was hard pressed
to understand why the hours of labor should be limited. Rather than
show that the interests of various capitalist blocs could be very di-
verse, or that the state was independent of the capitalists, he tried to
argue that these laws were to their self-interest insofar as they pre-
vented the exhaustion of workers. Moreover, the possible loss to the
capitalists was minimized by the increasing intensity of labor output

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THE LOST DEMOCRACY

per hour during the shorter work day. Later in Capital, however,
Marx used another interpretation of the state and its motives, re-
ferring frequently to a nonclass “society” that stands above and
beyond the interests of capitalists. “. . . capital is reckless of the
health or length of life of the labourer, unless under compulsion from
society.” Not self-interest but charity was used as an explanation of
state intervention. Child labor laws were “here and there . . . effected
by tile State to prevent 'the coining of children’s blood into capital.”
When Louis Bonaparte tried to extend the legal work day in 1852,
Marx wrote, “the French people cried out with one voice ‘the law
that limits the working day to twelve hours is the one good that has
remained to us of the legislation of the Republic.’ ” The concept of
“one voice” or “society” was a classless one, and a reflection on the
nature of the state. Marx showed how courts were utilized to circum-
vent the proper application of the laws, or how factory owners pres-
sured Parliament to obtain concessions, and he pointed to the
various loopholes in the existing laws. But Marx greatly respected
“The thoroughly conscientious investigations of the Children’s Em-
ployment Commission . . .,” and he exploited them to show the
horrors capitalism was creating in the English manufacturing centers.
Moreover, he extended this admiration to the Factory Act inspectors
themselves, who applied the law ruthlessly and treated the objections
of business “as a mere sham.”®

The specific economic form . . . determines the relationship of rulers and
ruled, as it grows directly out of production itself and, in turn, reacts
upon it as a determining element. Upon this, however, is founded the
entire formation of the economic community which grows up out of the
production relations themselves, thereby simultaneously its specific politi-
cal form. It is always the direct relationship of the owners of the condi-
tions of production to the direct producers — a relation always naturally
corresponding to a definite stage in the development of the methods of
labour and thereby its social productivity — which reveals the innermost
secret, the hidden basis of the entire social structure, and with it the
political form of the relation of sovereignty and dependence, in short, the
corresponding specific form of the state. 6

But even though the state reflected the social and productive rela-
tions within society — the economy — it was not to be used to enlarge
the power of the capitalists, to aid the process of accumulation, or
to regulate relations among them. All of this was taken care of in
the market place, which was precisely where the capitalist system

293

was to be destroyed. The capitalists controlled the state, according
to Marx’ formal theory but they were not going to use it in the eco-
nomic sphere. They might use it to club down workers, although
Marx did not develop this realistic possibility in sufficient detail
either. Where Marx actually saw the state operating, as in factory
and labor laws, he gave it an implicitly nonclass character. Marx’
dynamic economic theory was neatly isolated from the political
sphere, and he naively assumed that the capitalist state would sit
idly by while its material basis was destroyed by free economic laws.

Of all the writings of Marx and Engels on politics and the state,
Engels’ Anti-DUhring was by far the most systematic. Duhring’s
basic thesis was not entirely dissimilar to Marx’ discussion of primi-
tive accumulation. Early economic institutions were really “social-
economic constitutional forms of a purely political nature,” based
on the force of the state. Even in modem civilization, Diihring
argued, political conditions were the fundamental causes of the eco-
nomic situation — direct political force was primary — proposing a
theory quite the reverse of the Marxist concept. Engels, in a polemic
that virtually threw out Marx’ theory of primitive accumulation as
well, took the opposite view. Force and politics could not alter inexor-
able economic developments, and politics either conformed to eco-
nomics or was replaced by a political system capable of succumbing.
“. . . the progressive evolution of production and exchange brings us
of necessity to the present capitalist mode of production. . . . The
whole process can be explained by purely economic causes; at no
point whatever are robbery, force, the state or political interference
of any kind necessary .” 7 Indeed, in Engels’ case the state and politics
became so passive that he, much more than Marx, adopted an inter-
pretation which made the state a classless, abstract entity — the state
of bourgeois political theory. His discussion of the transition to so-
cialism represents a hopelessly naive mix of both definitions of the
state: the state as the tool of the capitalists and the state as the non-
class, independent agent.

Engels later went even further in advocating a theory of the neu-
tral state. Bonapartism had been able to balance the proletariat and
the bourgeoisie off against each other, and Bismarck was able to do
the same, giving the state a character and interest separated from
both classes, according to Engels. And, partly because it could be
used through corruption, and also because the workers had yet to

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THE LOST DEMOCRACY

develop a politically dangerous class consciousness, the “democratic
republic” was becoming the “inevitable necessity” of modem society,
a condition with obvious implications to its class functions . 8 The fact
that there were deep divisions between capitalists and emperors in a
number of the modem states did not lead Engels to an analysis of
internal divisions among power blocs, and the political expression
that conflict might take. The power base of the emperors was also
slighted, since it could not be subsumed within economic theory.

Marxist political theory was formulated mainly in response to
specific political events, and on the basis of brief and inconsistent
evaluations of the role of the state it is intended to be predictive. The
predictions were based not on political understanding or theory that
was especially serious, but on the anticipated outcome of economic
developments. By effectively ignoring the role of the state in modem
capitalism, Marxism lost sight of the possible resilience in capitalism,
a resilience made possible by political rather than economic power.
But if the state could determine the direction of the economy, an
entirely new situation might be created, and in fact was.

Rosa Luxemburg excepted, European socialists tended to disso-
ciate the economic activity and reforms of the state from the desire
of capitalism to strengthen itself, and actually to endorse the state’s
activity. More important, they formulated alternate programs based
essentially on the capitalist premises found in Marx: the assumption
that concentrated industry was the price of technological efficiency,
and that centralization and bureaucracy in decision-making were un-
avoidable. Luxemburg alone tried to think through an alternative
theory, really breaking with the true Marxist tradition. She failed
primarily because she did not go far enough in her consideration of
the role of the state in internal economics, dealing with it rather
merely as a sponsor of external imperialism; in the former respect her
methodology was of more limited historical value. Marxist theorists,
with a few uninfluential exceptions, have never seriously confronted
the relationship of the modern state to the economy.

The term “political capitalism” was first coined by Max Weber,
but the meaning I have given to it throughout this book has been one
that Weber would have strongly opposed . 8 And quite rightly, for
Weber’s entire system cannot be reconciled with the American ex-
perience in any significant way. Although Weber, the titan of social
theory in the twentieth century — a man who reflected and captured

295

the intense disillusion with industrial capitalism that has shaped Eu-
ropean social thought — frequently wrote about politics and economics
on the basis of his German experience, he felt that no where in the
world was his general theory more vindicated than in the United
States. Ironically, it is in the United States that Weber is least ap-
plicable. Yet his concerns, if not his ideas, are precisely those of this
study: the character of bureaucracy in the political sphere, the thrust
toward rationalization in economic and political life, the nature of
the state and its relationship to business. Weber was conscious, in
a way that only a man who had lived through the First World War
could be, of those complexities in modem society to which Marx
was necessarily oblivious. But for all his insight, Weber, like Marx,
abandoned himself to an impersonal future — to Historical Inevita-
bility. Marx’ future was optimistic, while Weber saw nothing ahead
but the deadening triumph of a clinical, mechanistic industrialism.
At the turn of this century neither alternative was inevitable, and the
economic and industrial future was still capable of being molded —
an opportunity we probably no longer have.

Although the America of the 1960’s is, unfortunately, much
closer to Weber’s image than to Marx’s, it did not become that way
in the manner Weber predicted. Modem Western capitalism, accord-
ing to Weber, had removed the state from the economy save in an
external, impersonal sense. “Political capitalism” to Weber meant
the accumulation of private capital and fortunes via booty connected
with politics, the exploitation of opportunities provided by political
bodies, colonialism, or tax farming. The basic argument of the entire
Weberian system was to show how and why the Western economy
had moved away from irregular forms of political capitalism — un-
predictable to both the state and the economy — toward a political
and economic rationalization of a sort very different from the one
I have described in this volume. For Weber neatly separated the
economic and political structure from one another in a way, so far
as the American experience is concerned, that was historically mean-
ingless. This bifurcation, I believe, was Weber’s fatal error.

To Weber, rationalization in the political sphere attained its high-
est expression in the area of the law. The general trend in modem
Western law was to make it classless in the sense that, no group or
faction was to have a favored position in the economic process once
certain ground rules were defined. The basic thesis Weber tiled to
advance was that “To those who had interests in the commodity

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THE LOST DEMOCRACY

market, the rationalization and systematization of the law in general
and, with certain reservations ... the increasing calculability of the
functioning of the legal process in particular, constituted one of the
most important conditions for the existence of economic enterprise
intended to function with stability and, especially, of capitalistic en-
terprise, which cannot do without legal security .” 10 Once a rationally
objective law was created the demands of concrete individuals or
interests were ignored, a fact that would have been impossible in
many nations under the favoritism prevalent during periods of politi-
cal capitalism as Weber defined it. And while Weber acknowledged
that the detached bureaucratic ad minis tration in charge of the imple-
mentation of the law was also protecting capitalism from the “irregu-
lar” demands of noncapitalists, which is to say the masses, he did not
make much of the point. The significant fact to Weber was that capi-
talists were being protected from each other, and that modem West-
ern law and states were taken out of the economic arena, leaving only
certain minim al, universally applicable ground rules for economic
activity. In the United States, of course, Weber’s legal theory was
nullified by Roosevelt’s detente system and the application of the
irregular “rule of reason” by both the executive and judicial branches
of the national government.

Weber discussed the nature and origins of the modern Western
state in detail, the basis of its legitimation, and especially the charac-
ter of its administration. Politics and political parties interested him,
but there is a disturbing impersonality about Weber’s writings no
matter how often one reads him. In part this is due to the sweeping
numbered and lettered categories or ideal-typologies that Weber per-
sistently used to catalogue all phenomena in virtually all places at
all times. Such a method resists concrete historical application, save
where Weber chose to make it. But the heart of the matter is that
ultimately Weber did not really believe that the political institutions
and structures of modern society had very deep or extensive conse-
quences. His belief in a now impersonal legal structure, the imper-
sonally administered state dominated by uncommitted bureaucrats,
led him to outline a state and political structure that is somehow
above or beyond the economic sphere, and is now virtually separated
from it. Yet even within his own writings can be found ample ran-
dom, untheoretical observations which disprove or raise serious
doubts concerning his own systematic theory.

297

To Weber, whether he was discussing politics or economics, “Bu-
reaucratization offers above all the optimum possibility for carrying
through the principle of specialized administrative functions accord-
ing to purely objective considerations .” 11 The structure and opera-
tional rules of modem bureaucracies were essentially the same to
Weber whether they functioned in industry or politics. Bureaucracies
are crucial to the successful operation of large-scale organizations,
and their efficiency is based ultimately on impersonal technical
knowledge. Bureaucracy both reflected and accelerated the trend
toward concentration and giantism in political and economic institu-
tions. In politics, as in economics, according to Weber, no changes
in the basic nature of the bureaucracy, or the dependence on it, could
really be effected by a change in formal leadership. Both the state
and the economy were based on organizational principles as well as
formal economic relations. A change in a government or ownership
might alter the specific leadership, but the essential organizational
structure — the bureaucracy — would ultimately prevail. In effect, poli-
tics could not overcome the basic institutional legacy of the modem
state and the systematized capitalist economy. It is for this reason
that I consider Weber a determinist and a pessimist.

Yet politics remained. Weber was fully aware of the social and
class character of modem parties and government, and that political
battles would be fought over economic issues; but he failed to relate
the consequences of those battles, once resolved, to the impersonality
of law and bureaucracy — because he really did not believe politics
could have serious consequences. Class and status were ultimately
based on economic power, and party mle was class rule. And while
the details of these facts were known to him, and he discussed the
rich political amateurs or the American city bosses paid by financial
magnates, the larger picture was overlooked by Weber. His discus-
sion of political bureaucracies ignored why new bureaucracies were
created. In the United States, for example, the technical knowledge
of new administrative agencies that were created was not the source
of their power. Power was created by decisions made in the political
sphere by pohtical agents, which is to say by class-oriented elements.
It was the politically based bureaucracy that sought to rationalize the
large-scale economic organization, to make economic decisions and
profits predictable and secure through pohtical means.

In large part due to his reliance on overschematized ideal-types

298

THE LOST DEMOCRACY

that did not necessarily have concrete historical relevance, Weber
ignored the specific value of his system. He categorized various types
of modem political leaders, but ignored why they were there, other
than legitimation provided by rational legal rules or charismatic hero
worship. He overlooked what modem parties do when in power, but
was concerned with only how they do it. Weber granted that elections
disturbed modern economic life, but he failed to consider how capi-
talists responded to them.

If one looks at the detailed organizational structures of the ad-
ministrative agencies created by the federal government from 1887
on, these agencies were seemingly neutral and Weber’s argument may
be vindicated. But if one regards their functions as a whole, and then-
genesis and original purposes, political bureaucracies are very much
a part of the structure of political capitalism created in the United
States during this period. Indeed, the formalization and independence
from the legislative and executive branches imposed on many agen-
cies was not due to a desire to find the technically best way of cre-
ating a bureaucracy, but to protect established economic interests
from the buffeting theoretically possible in a political democracy with
economic problems. Weber realized that monetary policy represented
an important political intervention into the economy, but he ignored
the implications of this fact to his conception of a modern capitalism,
that had “a horror” of political capitalism that relied on the govern-
ment rather than “the harnessed rational energy of routine enter-
prise. . . ,” 12 Capitalism, of course, was no longer able to fulfill its
intense desire for rationalization, which Weber rightly ascribed to it,
via private or personal methods. Even when discussing government
regulation that patently contradicted his thesis he overlooked the pur-
pose of such intervention — to attain stability, or profits, or even to
preserve existing social relations.

Weber’s discussion of economics, as opposed to the very distinct
area of politics in modern society, was hardly more adequate. Weber
did not really have an economic theory, although he discussed eco-
nomics extensively. He dealt with the motives of capitalists and their
personal qualities, and he discussed bureaucracy in a manner that
frequently applied only to economic institutions. Yet he never came
to grips with the crucial questions that preoccupied Marx : What were
the laws of capitalist development, the working dynamics and tend-
encies of the economy? Weber’s references to economics, like vir-

299

tuaUy his entire system, dealt in categories that were timeless and
more pretentious than Marx’. For this reason Weber was incapable
of identifying economic weaknesses that might require the interven-
tion of the state. The bureaucracy of the modern business, with its
efficiency and expertise, created the conditions of rationalization re-
quired by capitalism. So far as Weber was concerned, this self-regu-
lation, along with intercorporate market agreements and monopolies,
virtually exhausted the modem corporation’s requirements. Market
regulation by the state was largely assigned to past history, especially
if it involved capital accumulation through political means. The state
applied a limited set of laws uniformly, provided a suitable means of
exchange by which rational economic accounting and calculation was
possible, and left the rest to the capitalists themselves. Problems of
crises, profit ratios, market insecurity, and those issues central to the
general tradition of economic theory did not bother Weber very
much, or at least he failed to relate them to his larger scheme. For
this reason there is a certain lack of dynamics in Weber, an unneces-
sary, too convenient simplicity that goes beyond even that inherent
in his incessant use of typologies.

Weber was correct in suggesting that “North America has of-
fered the freest space for the development of high capitalism,” but
very little in his grand system is of aid in providing insights into that
development . 13 He failed to take the role of ideas or interests in mod-
em politics seriously enough. He separated the process of rationaliza-
tion in economics and technology from the role of the positive state,
and failed to see their dependence on one another despite the fact
that he recognized the political and economic elites were frequently
interlocked. The economic sphere had its own imperatives, the politi-
cal sphere its neutral justification of bureaucracy as an end in itself.
Weber rejected the possibility that victorious political parties, ad-
mittedly based on class interests, could determine the special form
and direction economic, industrial, and political rationalization took.
Instead, he imputed an internal, independent logic to developments
in each of these areas that could ultimately be traced back to the
theological origins of Western society. Weber ignored the genre of
capitalists who, in addition to wanting a predictable political and
industrial organization, also wanted one susceptible to aiding them
in the process of profit-making via political means and favors, and

300

THE LOST DEMOCRACY

to helping them attain industrial or financial rationalization. But such
a group was crucial in shaping the American political experience and
in defining political issues.

Despite his many shortcomings, only Thorstein Veblen, of all the
American intellectuals of the Progressive Era, understood the main
drift of American power relations in the period preceding the First
World War. One can still read Absentee Ownership, published in
1923, with the utmost profit, for Veblen captured the indispensable
reality of the domination of business over American politics, ethics,
and the key institutions of society.

Veblen’s concern with the material and industrial development of
America focused on the vested legal and political institutions that
were designed to preserve old social relations in new circumstances.
He never ceased to reiterate the crucial fact that “the chief — virtually
sole — concern of the constituted authorities in any democratic nation
is a concern about the profitable business of the nation’s substantial
citizens.” 14 Any administration had to represent the desires of big
business, and Congress was little more than a “Soviet of Business
Men’s Delegates.” Nowhere in the world did the big businessman
influence the entire fabric of society and culture as in America.

Yet, for all his perception, Veblen failed to grasp the structural
realities of the economy which the businessman ruled, and instead
offered a rather oversimplified view of the source of the business-
man’s domination. It was his contention that the commanding heights
of American business had expanded to such an extent that they were
controlled by absentee financial and credit interests who assigned
managerial responsibilities in the corporations to bureaucratic types.
Investment banking, and Morgan was its major practitioner, had
managed to take over the economy. In discussing this development,
however, Veblen ascribed a natural power to finance capital which
it did not have in fact, and he was unable to do more than explain
away the origins of federal regulation of the economy, and especially
the Federal Reserve Board. In its genesis, Veblen suggested, the Fed
eral Reserve Board was an event that was somehow brought under
control, to the profit of finance. This legislation, like all others, was
rechannelized because the personnel of politics was ultimately safe
a perfectly valid point that nevertheless failed to explain why legis-
lation was enacted in the first place. Veblen, in short, ascribed an

301

economic power to absentee ownership that it in reality did not have,
and his approach to federal legislation was to try to explain it away.

Despite his correct understanding of the nature of political leader-
ship as it stood, Veblen did not appreciate the tensions that were
nascent in any formally democratic politics, and the extent to which
action was necessary to direct this tension into harmless channels.
More significantly, he was unaware of insecurity in the economic
sphere and the extent to which government intervention was designed
to overcome it. This oversight was due to the fact that finance capi-
talism had not developed to the degree he believed, and that the basic
conditions in the economy were fluid to a larger extent than he appre-
ciated. But for all this, Veblen was largely correct for the wrong
reasons. The desire for security and predictability was real, and the
efforts to attain it eventually produced the sort of centralization of
decisions over the economy that Veblen ascribed to finance capital.
The effects of federal regulation were conservative, even though
Veblen slighted the intent. For all Veblen’s deficiencies, his contribu-
tion toward a theoretical comprehension of American history in this
century has never been equaled.

Theory and the
American Reality

The American experience justifies different theoretical conclu-
sions than those reached by Marx, Weber, or Veblen. Any rea-
sonable generalization on the phenomenon of progressivism must
necessarily take into account the economic realities and problems of
the period, and the responses that were set in motion. Yet the crucial
factor in the American experience was the nature of economic power
which required political tools to rationalize the economic process, and
that resulted in a synthesis of politics and economics. This integra-
tion is the dominant fact of American society in the twentieth cen-
tury, although once political capitalism is created a dissection of
causes and effects becomes extraordinarily difficult. The economy
had its own problems, dictated by technological innovation, under-
consumption, crises, and competition. But these difficulties were in-
creasingly controlled by political means to the extent that the con-

302

THE LOST DEMOCRACY

sideration of economic problems outside their political context is
meaningless. The “laws of capitalist development” were not self-
contained imperatives in the technological, economic, or political
sphere, but an inseparable unification of all three elements.

The object of such a combination was not merely capital accu-
mulation, although it was that as well, but a desire to defend and
exercise power through new media more appropriate to the struc-
tural conditions of the new century: the destructive potential of grow-
ing competition and the dangerous possibilities of a formal political
democracy that might lead to a radical alteration of the distribution
of wealth or even its total expropriation. Politics and the state be-
come the means of attaining order in the economic sphere and
security in the political arena. And they were accessible tools because
the major political parties and leaders of the period were also con-
servative in the sense that they believed in the basic value of capi-
talist social relations — of some variation of the status quo. The resili-
ence of capitalism, under these circumstances, becomes something
that cannot be evaluated in isolated economic terms. Behind the
economy, resting on ne\ / foundations in which effective collusion and
price stability is now the rule, stands the organized power of the
national government. The stability and future of the economy is
grounded, in the last analysis, on the power of the state to act to
preserve it. Such support does not end crises, nor does it eliminate
antagonisms inherent in the very nature of the economy, but it does
assure the ability of the existing social order to overcome, or survive,
the consequences of its own deficiencies. The theory of the national
government as a neutral intermediary in its intervention into the eco-
nomic process is a convenient ideological myth, but such a contention
will not survive a serious inquiry into the origins and consequences
of such intervention. The rhetoric of reform is invariably different
than its structural results. Such mythology is based on the assump-
tion that those who control the state will not use it for their own
welfare.

It is important to stress that under conditions of political capital-
ism the form of the industrialization process, and of the political
machinery of society, take on those characteristics necessary to ful-
fill the peculiar values, attributes, and goals of the ascendant class
of that society. The rationalized, dominated, and essentially totali-
tarian decision-making process is not a consequence of forces inher-

303

ent in industrialism, but in political capitalism in all its components.
The organization of industry is based on the decisions of men whose
motives have nothing whatsoever to do with inexorable destiny.
Mergers, the scale of effective production, the nature of the produc-
tion itself, and the direction given to the fruits of technology — all
these were decisions made by men whose motives, interests, and
weaknesses were peculiar to the basic capitalist assumptions upon
which they operated. Their errors were many, as were the possibili-
ties for their failure; but the national government stood behind them
so that the consequences of their mistakes would not be calamitous.
Perhaps industrialization would not have permitted democratic con-
trol and direct participation in the work process under any circum-
stances. All one can do is point to the large extent to which the
concentration of industry in this period had nothing to do with con-
siderations of efficient technology, and suggest that no effort whatso-
ever was ever made to democratize the work situation and industrial
control, much less consider the desirability of reducing technological
efficiency, if necessary, in such a way as to make decentralization or
workers’ control possible.

Nor is there any evidence to suggest that the bureaucratization of
the political machinery of society, to the extent it took place, was as
inevitable as the concentration of industry. It was perfectly logical
for men who had spent years solving their economic problems or
making their fortunes through political means to also welcome the
intervention of a centralized state power to meet problems they could
not solve themselves. Social forces, dynamic institutional factors,
were the cause of bureaucratic developments in the form of new po-
litical agencies and the strengthening of many of the older ones.
American capitalism was not merely interested in having law that
operated like a piece of machinery, as Weber suggested, but in uti-
lizing the state on terms and conditions which made bureaucratic
functions class functions. Bureaucracy, in itself, needed a power base
in order to operate in a roughly continuous, systematic fashion. Since
it had no economic power itself, it had to support, and hence be
supported by, powerful economic groups. This was especially true in
a situation where the conditions of political activity were defined by
political parties which in turn reflected economic interests, or where
the idea of the bureaucracy originated with those operating in the
very area in which the bureaucracy was to function.

304

THE LOST DEMOCRACY

The skeptical reader may ask whether political capitalism changed
after 1916, or perhaps whether capitalism was made more socially
responsible by virtue of the stability and rationalization it attained
through political means. The question is a moot one, and would take
at least one more volume to answer properly. All one can do is point
to the continuity in the nature of the political parties and their key
leaders, but, more important, to the perpetuation of the same dis-
tribution of wealth and the same social relations over the larger part
of this century. The solution of economic problems has continued to
take place in the political sphere, and the strength of the status quo
is based ultimately on the synthesis of politics and economics. Crises
have been overcome, or frozen, as much by the power of the state as
by internal economic resources applied by business in isolation.

The question remains: Could the American political experience,
and the nature of our economic institutions, have been radically dif-
ferent than they are today? It is possible to answer affirmatively,
although only in a hypothetical, unreal manner, for there was nothing
inevitable or predetermined in the peculiar character given to indus-
trialism in America. And, abstractly regarding all of the extraneous
and artificial measures that provided shape and direction to American
political and economic life, and their ultimate class function, it would
be possible to make a case for a positive reply to the question. Yet
ultimately the answer must be a reluctant “No.”

There can be no alternatives so long as none are seriously pro-
posed, and to propose a relevant measure of fundamental opposition
one must understand what is going on in society, and the relationship
of present actions to desired goals. To have been successful, a move-
ment of fundamental change would have had to develop a specific
diagnosis of existing social dynamics and, in particular, the variable
nature and consequences of political intervention in the economy. It
would have, in short, required a set of operating premises radically
different than any that were formulated in the Progressive Era or
later. Populism rejected, on the whole, the values of business even
as it was unable to articulate a viable alternative. Intellectually it left
a vacuum, and, more important, the movement was dead by 1900.
The Socialist Party suffered from the fetishistic belief in the necessity
of centralization that has characterized all socialist groups that inter-
preted Marx too literally, and it had a totally inaccurate estimate of

305

the nature of progressivism, eventually losing most of its followers
to the Democrats. The two major political parties, as always, differed
on politically unimportant and frequently contrived details, but both
were firmly wedded to the status quo, and the workers were generally
their captives or accomplices. No socially or politically significant
group tried to articulate an alternative means of orga nizi ng industrial
technology in a fashion that permitted democratic control over cen-
tralized power, or participation in routine, much less crucial, de-
cisions in the industrial process. No party tried to develop a program
that suggested democracy could be created only by continuous mass
involvement in the decisions that affected their lives, if the concen-
tration of actual power in the hands of an elite was to be avoided. In
brief, the Progressive Era was characterized by a paucity of alterna-
tives to the status quo, a vacuum that permitted political capitalism
to direct the growth of industrialism in America, to shape its politics,
to determine the ground rules for American civilization in the twen-
tieth century, and to set the stage for what was to follow.

NOTES

The following code abbreviations are used in the notes:

NA Mss
AG Mss

CB Mss
BAI Mss
BOC Mss
FTC Mss

FTCB Mss
FDA Mss
JG Mss
CG Mss
HH Mss

HR
PK Mss
JL Mss
WM Mss
RO Mss
GP Mss
AP Mss
HP Mss

MP

PP Mss

LTR

TR Mss
ER Mss
HS Mss
SEN
FS Mss
WT Mss
WW Mss
PWW

Nelson Aldrich Papers, Library of Congress

Attorney Generals Files, Department of Justice Records, National

Archives

Charles J. Bonaparte Papers, Library of Congress

Bureau of Animal Industry Records, National Archives

Bureau of Corporation Records, National Archives

Federal Trade Commission General Records, 1914-1921, National

Archives

Federal Trade Commission Files, F.T.C. Building, Washington

Food and Drug Administration Records, National Archives

James R. Garfield Papers, Library of Congress

Carter Glass Papers, University of Virginia Library

Henry Lee Higginson Papers, Baker Library, Harvard Business

School

House of Representatives Records, National Archives

Philander Knox Papers, Library of Congress

J. Laurence Laughlin Papers, Library of Congress

William H. Moody Papers, Library of Congress

Richard Olney Papers, Library of Congress

George W. Perkins Papers, Columbia University Library

Amos Pinchot Papers, Library of Congress

Henry F. Pringle Notes on Taft, Theodore Roosevelt Collection,

Harvard College Library

Messages and Papers of the Presidents (New York, no dates).
References are to the Bureau of National Literature editions for
each President.

Progressive Party Records, Theodore Roosevelt Collection, Har-
vard College Library

Elting E. Morison and John M. Blum, eds.. The Letters of Theo-
dore Roosevelt (8 vols., Cambridge, 1951-1954)

Theodore Roosevelt Papers, Library of Congress
Elihu Root Papers, Library of Congress

Henry Seligman Papers, Baker Library, Harvard Business School

Senate Records, National Archives

Francis Lynde Stetson Papers, Williams College Library

William Howard Taft Papers, Library of Congress

Woodrow Wilson Papers, Library of Congress

Ray S. Baker and William E. Dodd, eds., The Public Papers of

Woodrow Wilson (6 vols.. New York, 1925-26)

All platform quotations are from Kirk H. Porter, ed., National Party Plat-
forms (New York, 1924).

chapter one — Monopolies and Mergers: Predictions and Promises

1. Dodd in James H. Bridge, ed., The Trust: Its Book (New York, 1902),
47; Hill and Logan in North American Review, CLXXII (1901), 647, 689.

307

308

NOTES

2. Bankers’ Magazine, LXII (1901), 657.

3. J. K. Gwinn in The Annals of the American Academy of Political and
Social Science, XLII (1912), 126. Also see Schwab in North American Review,
op. cit., 655-59; U.S. Industrial Commission, Preliminary Report on Trusts and
Industrial Combinations; 56:1 (Washington, 1900), I, 223.

4. Charles Francis Adams, Jr., Speech Before the [Alarr.] Joint Standing
Legislative Committee on Railways (Boston, 1873), 35; The Federation of the
Railroad System (Boston, 1880), 19; Railroads: Their Origin and Problems
(New York, 1878), 121.

5. Civic Federation of Chicago, Chicago Conference on Trusts, Sept. 13-16,
1899 (Chicago, 1900), 579.

6. John Moody, The Truth About the Trusts (New York, 1904), 494.

7. Frederick Engels, Anti-Diihring (Moscow, 1959), 226; National Cam-
paign Committee, The Socialist Campaign Book of 1900 (Chicago, 1900), 30;
W. J. Ghent, Our Benevolent Feudalism (New York, 1902), 8 ff.; Caro Lloyd,
Henry Demarest Lloyd, 1847-1903 (New York, 1912), I, 287; Ira Kipnis, The
American Socialist Movement, 1897-1912 (New York, 1952), 112; Gaylord
Wilshire, Socialism Inevitable (Wilshire Editorials) (New York, 1907), 140, 180;
Sigmund Diamond, The Reputation of the American Businessman (Cambridge,
1955), 85.

8. See Gary in U.S. Senate, Comm, on Interstate Commerce, Hearings on a
Bill to Create an Interstate Trade Commission; 62:2 (Washington, 1912), I,
693; data on merger movement from Ralph L. Nelson, Merger Movements in
American Industry, 1895-1956 (Princeton, 1959), passim; U.S. Industrial Com-
mission, Final Report; 57:1 (Washington, 1902), XIX, 486-91; Thomas R.
Navin and Marian V. Sears, “The Rise of a Market for Industrial Securities,
1887-1902,” Business History Review, XXIX (1955), 105-38; Henry Clews,
Fifty Years in Wall Street (New York, 1908), 768 and passim; Industrial Com-
mission, Preliminary Report, I, 960-63; Burton J. Hendrick, The Life of Andrew
Carnegie (Garden City, 1932), II, 84 ff.; Arthur S. Dewing, Corporate Promo-
tions and Reorganizations (Cambridge, 1914), 523, 538.

9. Charles R. Flint, Memories of an Active Life (New York, 1923), 297-
321; North American Review, op. cit., 665-67. The return on capitalization at
par was 7.4 per cent.

10. Francis Lynde Stetson, Address Before the Economic Club of New
York, June 5, 1907 (no place, no date), 12. Also see Industrial Commission,
Final Report, XIX, 616; Bulletin of the Department of Labor, V (1900),
670; Dewing, Corporate Promotions, 533; Industrial Commission, Preliminary
Report, I, 249; Edward S. Meade, Trust Finance (New York, 1903), 181; U.S.
Bureau of Corporations, Report of the Commissioner of Corporations on the
Steel Industty, July 1, 1911 (Washington, 1911), pt. I, 37, 16T79, 251.

11. “Memorandum of Agreement,” U.S. Rubber Papers, Baker Library,
Harvard Business School, Jan. 21, 1892.

12. Sage in North American Review, op. cit., 643; Clews, Fifty Years, 768.
Also see Algernon A. Osborne, Speculation on the New York Stock Exchange,
September, 1904 — March, 1907 (New York, 1913), 149-58; Thomas R. Navin
and Marian V. Sears, “A Study in Merger: Formation of the International Mer-
cantile Marine Company,” Business History Review, XXVIII (1954), 291-328;
N. R. Danielian, A.T. & T. (New York, 1939), 60-73.

13. Iron Age, LXVI (Nov. 22, 1900), 28 ff.

309

chapter two — Competition and Decentralization: The Failure to

Rationalize Industry

1. In 1909, however, 1.1 per cent of the total number of establishments ac-
counted for 43.8 per cent of the value of all products. Many smaller firms were
not full-line producers. U.S. Bureau of the Census, Thirteenth Census of the
United States: Manufactures — 1909 (Washington, 1913), VIII, 32, 40, 181;
Historical Statistics of the United States, Colonial Times to 1957 (Washington,
1960), 570; Dun’s Review, XXXIV (Jan. 9, 1926), 7-8.

2. Clews, Fifty Years, 767.

3. Iron Age, op. cit., 28.

4. National Industrial Conference Board, Mergers in Industry (New York,
1929), 39; A. S. Dewing, “A Statistical Test of the Success of Consolidations,”
Quarterly Journal of Economics, XXXVI (1921), 84-101; Dewing, Corporate
Promotions, 526, 547-58; Shaw Livermore, “The Success of Industrial Mergers,”
Quarterly Journal of Economics, L (1935), 75-89; Nelson, Merger Movements,
97-98, 161-62; George J. Stigler, “Monopoly and Oligopoly by Merger,” Ameri-
can Economic Review, XL (1950), 29; Alfred L. Bemheim et al.. How Profit-
able Is Big Business? (New York, 1937), 107-14; A. D. H. Kaplan, Big
Enterprise in a Competitive System (Washington, 1954), 145-46; Gabriel Kolko,
Wealth and Power in America (New York, 1962), 60.

5. For decentralization, patents, and economies of size, see Alfred D.
Chandler, “Management Decentralization: An Historical Analysis,” Business
History Review, XXX (1956), 111-74; John M. Blair, “Technology and Size,”
American Economic Review, XXXVIII (1948), 129 IT.; U.S. Temporary
National Economic Committee, Relative Efficiency of Large, Medium-Sized,
and Small Business (Washington, 1941), passim; and especially Joe S. Bain,
Barriers to New Competition (Cambridge, 1956), passim. The number of pat-
ents issued to individuals increased over 50 per cent between 1901 and 1916,
to 31,742. Historical Statistics, 607.

6. New York Financier, LXXV (1900), 1312.

7. For the general background of the steel industry, see Abraham Berglund,
The United States Steel Corporation (New York, 1907); Bureau of Corpora-
tions, Report ... on the Steel Industry, Hendrick, Life of Andrew Carnegie;
U.S. House, Committee on Investigation of United States Steel Corporation,
Hearings ; 62:2 (8 vols., Washington, 1911-1912); George Harvey, Henry Clay
Frick — The Man (New York, 1928); Thirteenth Census, X, 207-08, 228. For
the early years of U.S. Steel, also see John A. Garraty, Right-Hand Man: The
Life of George W. Perkins (New York, 1960), 96-119. The Gary Dinners are
also covered in Senate Committee on Interstate Commerce, Hearings on ... an
Interstate Trade Commission, 704; BOC Mss, file 6518-8; Iron Age, LXXX
(1907), 1549; LXXXI (1908), 1650-52, 1710-11, 1892; LXXXII (1908), 1757;
LX XXI II (1909), 648, 1862-63. For decline of market shares also see Walter
Adams, ed., The Structure of American Industry (New York, 1950), 157;
Simon N. Whitney, Antitrust Policies: American Experiences in Twenty Indus-
tries (New York, 1958), I, 290-92; William Z. Ripley, ed., Trusts, Pools and
Corporations (Boston, 1916), chap. V; Fritz Redlich, History of American
Business Leaders (Ann Arbor, 1940), I, 132.

8. Charles Schwab to Perkins, July 3, 1901, GP Mss.

9. Perkins to John D. Rockefeller, July 8, 1903, GP Mss.

10. E. H. Gary to Bonaparte, Feb. 11, 1908, CB Mss; E. H. Gary, Statement
to the Public Press, January 31, 1908 (no place), 1-2.

310

NOTES

11. Iron Age, LXXXIII (1909), 648.

12. Perkins to J. P. Morgan, March 11, 1909, Oct. 15, 1910, GP Mss.

1 3. For the growth and general background of Standard, see U.S. Bureau of
Corporations, Report of the Commissioner of Corporations on the Petroleum
Industry, Part I, May 20, 1907 (Washington, 1907); Allan Nevins, John D.
Rockefeller: The Heroic Age of American Enterprise (New York, 1940);
George W. Stocking, The Oil Industry and the Competitive System (Boston,
1925); John S. McGee, “Predatory Price Cutting: The Standard Oil (N. J.)
Case,” The Journal of Law and Economics, I (1958), 137-69; Industrial Com-
mission, Reports, I, 215, XJX, 597. For the growth of competition, see Melvin
G. DeChazeau and Alfred E. Kahn, Integration and Competition in the Petro-
leum Industry (New Haven, 1959), 83 ff.; Warren C. Platt, “40 Years of Oil
Competition,” National Petroleum News, XXXXI (1949), 29-58; Raymond F.
Bacon and William A. Hamor, The American Petroleum Industry (New York,
1916), I, 73, 262-70; U.S. Federal Trade Commission, Petroleum Industry:
Prices, Profits, and Competition (Washington, 1928), 61 ff.; Whitney, Antitrust
Policies, I, 107; Leonard M. Logan, Jr., Stabilization of the Petroleum Industry
(Norman, 1930), 18-19.

14. Petroleum Producers’ Union, Address to Producers of Petroleum Issued
by the General Council, July 13, 1878 (Titusville?, 1878), 3.

15. For the industry in general, see Allan Nevins, Ford: The Times, the
Man, the Company (New York, 1954); Lawrence H. Seltzer, A Financial
History of the American Automobile Industry (Boston, 1928); John B. Rae,
“The Electric Vehicle Company,” Business History Review, XXIX (1955), 302;
John B. Rae, American Automobile Manufacturers: The First Forty Years
(Philadelphia, 1959), chap. Ill; the studies by Ralph C. Epstein in Harvard
Business Review, V (1927), 157-74, 281-92.

16. Henry Seligman to Isaac Seligman, Sept. 20, 1910, HS Mss.

17. Alfred Sloan, Jr., Adventures of a White-Collar Man (New York, 1941),
134-35.

18. See Garraty, Life of Perkins, 127-46; U.S. Bureau of Corporations, The
International Harvester Company, March 3, 1913 (Washington, 1913); Cyrus
McCormick, International Harvester Company (no place, May 20, 1907), 2-4;
U.S. Temporary National Economic Committee, The Structure of Industry
(Washington, 1941), monograph 37, 242; Whitney, Antitrust Policies, H,
230-31.

19. H. K. Smith, “Memorandum in Re Second Interview With International
Harvester Company on January 19, 1907,” BOC Mss.

20. For the industry in general, see U.S. Federal Communication Commis-
sion, Proposed Report: Telephone Investigation (Washington, 1938), chaps. I,
II, IV, and passim-, Danielian, A.T. & T ., passim ; Arthur Pier, Forbes: Telephone
Pioneer (New York, 1953), 139-56; Annual Reports, American Telephone and
Telegraph Company, 1908 (Boston, 1909), 22; 1911 (New York, 1912), 27-32.
For additional data on profits, rates, and innovation, see A. C. Lindemuth,
Telephone Mergers Illegal (Chicago, 1908), 11-12; Edward M. Cooke, The
Case of the Keystone Telephone (noplace, ca. 1915), 4; U.S. Senate, Investiga-
tion of Telephone Companies; 61:2 (Washington, 1910), 136-44.

21. William B. Gates, Jr., Michigan Copper and Boston Dollars: An Eco-
nomic History of the Michigan Copper Mining Industry (Cambridge, 1951),
44-89; Moody, Truth About the Trusts, 16; T.N.E.C., The Structure of In-
dustry, 249.

311

22. Henry Seligman to Albert Seligman, Feb. 4, 1885, HS Mss.

23. Charles Edward Russell, The Greatest Trust in the World (New York,
1905), 5; also 2, 13, 145-47.

24. For the general background, see Whitney, Antitrust Policies, I, 31 ff.;
U.S. Bureau of Corporations, Report of the Commissioner of Corporations on
the Beef Industry, March 3, 1905 (Washington, 1905), passim ; U.S. Federal
Trade Commission, Report on the Meat-Packing Industry, Part I, June 24, 1919
(Washington, 1919), 46-48; Bertram B. Fowler, Men, Meat and Miracles (New
York, 1952), 90-92, 134-36.

25. Bureau of Corporations, Report . . . on the Beef Industry, 59.

26. For the growth of competition in other industries, see Harold C. Passer,
The Electrical Manufacturers, 1875-1900 (Cambridge, 1953), passim ; Richard
B. Tennant, The American Cigarette Industry: A Study in Economic Analysis
and Public Policy (New Haven, 1950), passim ; Warren C. Scoville, Revolution
in Glassmaking: Entrepreneurship and Technological Change in the American
Industry, 1880-1920 (Cambridge, 1948), 70-75; Paul L. Vogt, The Sugar Re-
fining Industry in the United States (Philadelphia, 1908), passim; Melvin T.
Copeland, The Cotton Manufacturing Industry of the United States (Cambridge,
1912), 143-45, 170; Whitney, Antitrust Policies, 1, chap. IV, 353-57, H, 197-
99, 258-60.

27. For data on the following discussion, see Harold Barger, Distribution’s
Place in the American Economy Since 1869 (Princeton, 1955), 6, 13; Harold
U. Faulkner, The Decline of Laissez Faire, 1897-1917 (New York, 1951),
passim; Simon Kuznets et al.. Population Redistribution and Economic Growth:
United States, 1870-1950 — Analyses of Economic Change (Philadelphia, 1960).
The output per firm during 1899-1914 in thirty-five industries increased 56 per
cent, the total volume 76 per cent, and the number of companies 13 per cent.
Frederick C. Mills, Economic Tendencies in the United Stales (New York,
1932), 36. For social mobility, see William Miller, ed., Men in Business (Cam-
bridge, 1952),

chapter three — Theodore Roosevelt and the Foundations of
Political Capitalism, 1901-1904

1. U.S. Senate, Bills and Debates in Congress Relating to Trusts; 57:2
(Washington, 1903), I, 91, 94.

2. Ibid., 156; also 23, 78, 121.

3. Harvey, Henry Clay Frick, 157.

4. William Endicott, Jr., to Olney, April 23, 1893, RO Mss. Also see Henry
James, Richard Olney and His Public Service (Boston, 1923), 30; Henry Lee
Higginson to Olney, April 19, 1893; Olney to Herbert L. Satterlee, April 15,
1914, RO Mss; H. C. Fahnestock to Stetson, June 27, 1893, FS Mss.

5. Industrial Commission, Preliminary Report, 5, 797; also 231-37.

6. U.S. Senate, Committee on Privileges and Elections, Campaign Con-
tributions; 62:3 (Washington, 1913), 151, 154.

7. Roosevelt to Douglas Robinson, Oct. 4, 1901, LTR, III, 160.

8. Mark Hanna, Mark Hanna — His Book (Boston, 1904), 39 and passim.
Also see Herbert Croly, Marcus Alonzo Hanna: His Life and Work (New York,
1912), 317; Philip C. Jessup, Elihu Root (New York, 1938), I, 210; Roosevelt
to J. P. Morgan, March 27, 1901, LTR, III, 30; Perkins to John A. McCall,
March 10, June 22, 1900, GP Mss.

312

NOTES

9. Roosevelt to Douglas Robinson, Oct. 4, 1901, LTR, III, 159-60. Also
see “First Draft, October 2, 1901. Corporations,” and Roosevelt to Perkins,
Oct. 17, 1901, GP Mss.

10. MP, 6645-48.

11. “Memorandum in Northern Securities Case: in re ‘Overcapitalization’”
(no date), PK Mss. Also see Knox to Henry C. Frick, June 28, Oct. 22, 1902,
PK Mss; and Hans B. Thorelli, The Federal Antitrust Policy: Origination of an
American Tradition (Stockholm, 1954), 420-25, for theories on the case.

12. Joseph B. Bishop, Theodore Roosevelt and His Time (New York, 1920),
I, 184.

13. Speech of Sept. 20, 1902, in William W. Mills, ed., “The Trust Question:
Statements by Theodore Roosevelt from December 3, 1901, to June 30, 1914,”
a manuscript in Roosevelt Collection, Harvard College Library.

14. James B. Dill, “National Incorporation Laws for Trusts,” Yale Law
Journal, April, 1902, 2 of reprint. For business agitation for a Commerce Dept.,
see petitions and letters in HR 51A-H6.5; SEN 54A-J18; HR 54A-F19.2; HR
54A-H14.5; HR 55A-F16.2; HR 55A-H9.3.

15. MP, 6716; also 6711.

16. Roosevelt to Perkins, Dec. 26, 1902; Perkins to Roosevelt, Dec. 27, 1902,
GP Mss.

17. Joseph B. Foraker to Perkins, Jan. 3, 1903, GP Mss. Also William C.
Beer to Perkins, Jan. 6, 7, 11, 15, 1903, GP Mss.

18. Roosevelt to Perkins, June 26, 1903, GP Mss. Also see Thorelli, Federal
Antitrust Policy, 539-54; Arthur M. Johnson, “Theodore Roosevelt and the
Bureau of Corporations,” Miss. Valley Historical Review, XLV (1959), 571-77;
Nevins, John D. Rockefeller, II, 516; Roosevelt to Knute Nelson, July 21, 1906,
LTR, V, 334.

19. Perkins to Roosevelt, July 3, 1903, GP Mss; Roosevelt to William How-
ard Taft, March 19, 1903, LTR, III, 450. Also see George Cortelyou to Aldrich,
Feb. 5, 1903, NA Mss.

20. Roosevelt to Aldrich, March 16, 1903, NA Mss; Cortelyou to Perkins,
April 17, 1903, GP Mss. Also see Roosevelt to Aldrich, July 22, 1903, NA Mss.

21. For Garfield see Jack M. Thompson, James R. Garfield: The Career of
a Rooseveltian Progressive, 1895-1916 (Unpublished Ph D. thesis, Univ. of
South Carolina, 1958), 79-80.

22. MP, 6785-86. Also see Roosevelt to Henry Cabot Lodge, Aug. 6, 1903,
LTR, III, 545; Louis A. Coolidge, Orville H. Platt (New York, 1910), 513-19;
Roosevelt to Theodore Roosevelt, Jr., Oct. 4, 1903, LTR, III, 615.

23. A number of briefs are in FTCB Mss, and insurance studies are in BOC
Mss.

24. Jessup, Elihu Root, I, 416. Also Everett Walters, Joseph Benson Foraker:
An Uncompromising Republican (Columbus, 1948), chap. XIII.

25. William C. Beer to Herbert Knox Smith, Aug. 23, 1907, BOC Mss.

26. Garfield, “Conference With Virgil P. Kline of Cleveland, Counsel for
the Standard Oil Co.,” June 2, 1904, BOC Mss.

27. Garfield to Roosevelt, Oct. 1, 1904, BOC Mss; Roosevelt to Garfield,
Sept. 30, 1904, BOC Mss. Also see Meyer H. Fishbein, Bureau of Corporations:
An Agency of the Progressive Era (Unpublished M.A. thesis, American Univ.,
1954), 72-73; Thompson, James R. Garfield, 105; Garfield to Charles G. Dawes,
Aug. 17, 1904. BOC Mss.

28. “Hist, of Bur. of Corp. for Republican Campaign Book” [1904], in JG
Mss. This draft was not used.

313

29. George Kennan, E. H. Harriman (Boston, 1922), II, 192 ff.; Jessup,
Elihu Root, 429-30; Senate Committee on Privileges, Campaign Contributions,
II, 1105; Roosevelt to George B. Cortelyou, Oct. 26, 1904, LTR, IV, 996.

30. Roosevelt to Knox, Nov. 10, 1904, LTR, IV, 1023.

31. MP, 6899.

32. MP, 6901; Report of the Commissioner of Corporations, December,
1904 (Washington, 1904), 36.

33. Garfield to the Secretary of Commerce, March 4, 1907, BOC Mss.

34. Harper’s Weekly, XLIX (Jan. 7, 1905), 8. Also see Garfield to Francis
Lynde Stetson, Dec. 24, 1904, FS Mss; Stetson to Garfield, Dec. 27, 1904; Seth
Low to Garfield, Dec. 23, 1904; Garfield to George Perkins, Dec. 24, 1904,
FTCB Mss. The FTCB Mss contain about 50 letters of congratulations from
businessmen.

chapter four — Roosevelt As Reformer, 1904-1906

1. Ida M. Tarbell, The Life of Elbert H. Gary (New York, 1925), 184.

2. “Conference at White House, Evening of November 2, 1905,” Nov. 4,
1905, in BOC Mss. Also see Herbert K. Smith to Wm. J. Filbert. Sept. 22, 1905;
James R. Garfield to Elbert H. Gary. Oct. 13, 1905; William H. Baldwin to
Garfield, Oct. 17, 1905, BOC Mss.

3. Elbert H. Gary to Garfield, Nov. 10, 1905; Garfield to Gary, Nov. 13,
1905, BOC Mss.

4. Diary, Nov. 2, 1905, JG Mss.

5. Diary, March 3, 1905, JG Mss; Russell, Greatest Trust in the World, 5.
Also Charles Dawes to Garfield, Sept. 13, 1904, BOC Mss; Diary, Sept. 15,
1904, JG Mss; Herbert K. Smith to Garfield, April 26, 1905, BOC Mss.

6. Diary, March 13, 1905, JG Mss.

7. Diary, Jan. 20, 1905, JG Mss.

8. Virgil P. Kline to Garfield, June 13, 1905, BOC Mss. Also Roosevelt to
Lyman Abbott, Sept. 5, 1903, LTR, III, 591; Roosevelt to Nicholas Murray
Butler, Aug. 6, 1904, LTR, IV, 883; Diary, Jan. 21, 1905, JG Mss; memos to
Mortimer F. Elliott, June 8, 1905, and V. P. Kline, Nov. 1905; Garfield to
Kline, Dec. 1, 1905, BOC Mss.

9. Jessup, Elihu Root, I. 431-41, 455, 489-90; Henry F. Pringle, The Life
and Times of William Howard Taft (New York, 1939), I, 316.

10. E. H. Harriman to Roosevelt, Dec. 2, 1904, LTR, V, 450, is an example
of railroad reliance on Morton. Also see Railway and Engineering Review, XLV
(1905), 477; Roosevelt to William H. Moody, June 12, 17, 1905, LTR, IV,
1210, 1237.

11. Civic Federation of Chicago, Conference on Trusts, 620, 622.

12. Diary, Oct. 11, Nov. 28, 1905, JG Mss; Reports of the Department of
Commerce and Labor — 1905 (Washington, 1906), 74-75.

13. MP, 6973-74, 6979-80, 6984-85.

14. J. Owen Stalson, Marketing Life Insurance (Cambridge, 1942), passim ;
R. Carlyle Buley, The American Life Convention. 1906-1952: A Study in the
History of Life Insurance (New York, 1953), I, passim.

15. Ohio Underwriter, quoted in Buley, American Life Convention, I, 145;
Spectator, LX (Jan. 13, 1898), 14. Also see Stalson, Marketing Life Insurance,
541; John F. Dryden, Addresses and Papers on Life Insurance and Other Sub-
jects (Newark, 1909), 178 ff.; John M. Pattison to James R. Garfield, Dec. 29,
1904, FTCB Mss; C. A. Cook, “National Supervision of Insurance,” Sept. 7,
1904, BOC Mss.

314

NOTES

16. Garraty, Life of George Perkins, 180; Thomas Beer, Hanna (New York,
1929), 307-08; Perkins to John A. McCall, March 10, 1900, June 22, 1900, GP
Mss; Charles S. Moore to James R. Garfield, June 15, 17, 1904, BOC Mss.

17. Clarence E. Porter to Garfield, June 10, 1904, BOC Mss. Also see W.
W. Fuller to Aldrich, Dec. 9, 1903; John Wanamaker to Aldrich, Dec. 5, 1903,
NA Mss; Charles S. Moore to Garfield, June 13, 15, 17, 1904, BOC Mss.

18. Dryden, Addresses and Papers, 196.

19. All found in files 0-6 to 160, BOC Mss.

20. James M. Beck to Garfield, Jan. 25, Feb. 7, 1905, FTCB Mss; H. K.
Smith, “Memorandum of interviews with Presidents of Hartford Insurance
Companies re Federal Supervision,” 1905, BOC Mss.

21. See Burton J. Hendrick, The Story of Life Insurance (New York, 1907);
Buley, American Life Convention, I, chap. IV; Roosevelt to Isaac W. Mac-
Veagh, Oct. 8, 1905, LTR, V, 50; Francis L. Stetson to Garfield, Nov. 14, 1905,
BOC Mss; Roosevelt to Thomas D. O’Brien, Nov. 24, 1905, LTR, V, 93.

22. Buley, American Life Convention, 1, 251.

23. MP, 7290. Also House Report No. 2491, March 23, 1906, 59:1.

24. Buley, American Life Convention, I, 430-31; Dryden, Addresses and
Papers, 163; Historical Statistics, 672; William C. Redfield to Joseph Davies,
May 29, 1913; Davies to Redfield, July 14, 1913, BOC Mss; Darwin P. Kings-
ley, Militant Life Insurance and Other Addresses (New York, 1911), passim.

25. U.S. Dept, of Agriculture, Bureau of Animal Husbandry, The Federal
Meat-Inspection Service (Washington, 1908), 8-10; “Report, 1888,” BAI Mss;
National Archives, Preliminary Inventories, No. 106 (Washington, 1958), 1-2;
HR 46A-H2.2.

26. See “Letters to State Department, 1892-97,” BAI Mss; “Reports, 1896,
1897,” BAJ Mss; Oscar E. Anderson, Jr., The Health of a Nation: Harvey W.
Wiley and the Fight for Pure Food (Chicago, 1958), 128; Bureau of Corpora-
tions, Report . . . on the Beef Industry, 58; C. W. Baker to James Wilson, Dec.
27, 1900; Jacob Dold Packing Co., to B. P. Wende, Npv. 29, 1905, BAI Mss;
Harper Leech and John C. Carroll, Armour and His Times (New York, 1938),
172-88; Records of Food Standards Comm, in FDA Mss.

27. D. C. Salmon to Orson S. Marden, April 10, 1905, BAI Mss.

28. J. Ogden Armour, “The Packers and the People,” Saturday Evening
Post, CLXXVII1 (March 10, 1906), 6, italics in original. Also see Armour's
The Packers, the Private Car Lines, and the People (Philadelphia, 1906),
342-55.

29. Roosevelt to Upton Sinclair, March 15, 1906, LTR, V, 179-80.

30. Upton Sinclair, American Outpost: A Book of Reminiscences (New
York, 1932), 175; Sinclair, “The Condemned-Meat Industry: A Reply to Mr. J.
Ogden Armour,” Everybody's Magazine, XIV (1906), 612-13.

31. James Wilson to Albert Beveridge, May 14, 1906; A. D. Melvin to
James W. Wadsworth, May 31, 1906, BAI Mss; Roosevelt to Beveridge, May 23,
1906, LTR, V, 282; Claude G. Bowers, Beveridge and the Progressive Era
(Boston, 1932), 228-29; and resolutions in SEN 59A-J3.

32. MP, 7298; Washington Post, June 5, 1906.

33. U.S. House of Representatives, Committee on Agriculture, Hearings on
the . . . ‘Beveridge Amendment’ . . .; 59:1 (Washington, 1906), 5, 55, and
passim .

34. Congressional Record, XXXX, pt. 10, 59:1, 9657-58. Also Washington
Post, May 31, 1906.

315

35. James Wadsworth to Roosevelt, June 15, 1906, in Washington Post,
June 16, 1906. Also see the Post, June 11, 1906; Roosevelt to Wadsworth, June
15, 1906, LTR, V, 298.

36. Perkins to J. P. Morgan, June 25, 1906, GP Mss.

37. Sinclair, American Outpost, 175-76. Also Bureau of Animal Husbandry,
Federal Meat-Inspection Service, 19-20.

38. “Packers’ Convention on Pure Food and Meat Inspection,” August 30-31,
1906, Washington, 46, in Bureau of Chemistry Records, National Archives;
Outlook, LXXXV (Jan. 5, 1907), 52.

39. National Provisioner, XXXXI (Dec. 18, 1909), 19. Also see James
Wilson to Redfield Proctor, Feb. 11, 1908, BAI Mss; George McCarthy to Taft,
Nov. 18, 1910, WT Mss; Fowler, Men, Meat and Miracles, 113-15.

40. Anderson, Harvey W. Wiley, 127. Also see HR 45A-H12.1; HR 46A-
H13.1; National Board of Trade, Proceedings of the Eighteenth Annual Meet-
ing, January 1888 (Boston, 1888), 19.

41. Petitions in SEN 55A-J51; HR 56A-H10.5; HR 57A-H11.9; also see
Pharmaceutical Era, March 10, 1898, 365-66; Alex. J. Wedderbum to Chairman
of House Committee on Interstate and Foreign Commerce, March 15, 1900, in
HR 56A-F15.1; D. M. Parry to Harvey W. Wiley, Jan. 6, 1903; A. C. Morrison
to Wiley, Dec. 19, 1902; Leonard M. Frailey to Wiley, Dec. 20, 1903, FDA
Mss; Anderson, Harvey W. Wiley, 157-61; The Interstate Grocer, May 3,
1902, 1.

42. Harvey W. Wiley, An Autobiography (Indianapolis, 1930), 231-32. Also
Oscar E. Anderson, “The Pure-Food Issue: A Republican Dilemma, 1906-
1912,” American Historical Review, LXI (1956), 550-73.

43. Roosevelt to Ira Remsen, Jan. 16, 1908; Roosevelt to Henry H. Rusby,
Jan. 7, 1909, LTR, VI, 908-09, 1467-68. Also Wiley, Autobiography, 238 ff.

44. Samuel P. Hays, Conservation and the Gospel of Efficiency: The Prog-
ressive Conservation Movement, 1890-1920 (Cambridge, 1959), 1-2, 127.

45. MP, 6685. Also see New York Commercial, April 16, 1906.

46. Roosevelt to Lyman Abbott, June 18, 1906; Roosevelt to William Allen
White, July 31, 1906, LTR, V, 307, 340.

47. Roosevelt to William Allen White, July 31, 1906; Roosevelt to Kermit
Roosevelt, May 30, 1908, LTR, V, 341, VI, 1044.

48. Robert M. La Follette, La Follelte's Autobiography (Madison, 1913),
479.

chapter five — Roosevelt and Big Business, 1906-1908

1. Perkins to J. P. Morgan, June 25, 1906, GP Mss.

2. House Committee on Investigation of U.S. Steel Corp., Hearings, 8, 1 1,
126-27, 1073-96, 1133; Tarbell, Gary, 198-99; Iron Age, LXXXI (1908), 1583-
99; Arthur Pound and Samuel T. Taylor, eds.. They Told Barron: The Notes of
the Late Clarence W. Barron (New York, 1930), 322-23; Perkins to J. P. Mor-
gan, April 20, 1906, GP Mss.

3. Perkins, “The Financial Crisis of October 1907,” 41-43, in GP Mss. Also
see House Committee on Investigation of U.S. Steel Corp., Hearings, 1112.

4. This and subsequent letters are in ER Mss. Also see House Committee
on Investigation of U.S. Steel Corp., Hearings, 7, 125, 135-40, 172-73, 198-201,
1127-34, 1375-79; Tarbell, Gary, 200-04; Roosevelt, “The Trusts, the People,
and the Square Deal,” Outlook, XCIX (1911), 649-50; Harvey, Henry Clay
Frick, 302-06.

316

NOTES

5. Roosevelt to Kermit Roosevelt, Jan. 23, 1909, LTR, VI, 1481. Also see
Luther Conant, Jr., to Herbert Knox Smith, Dec. 25, 1908; William C. Baldwin
to Elbert H. Gary, Jan. 7, 1909; George W. Perkins to Warren R. Choate, Jan.
18, 1909, BOC Mss; Charles J. Bonaparte memo of Jan. 9, 1909, CB Mss.

6. Gary to William Baldwin, Feb. 4, 1909, BOC Mss.

7. Charles A. Gulick, Labor Policy of the United States Steel Corporation
(New York, 1924), passim; David Brody, Steelworkers in America: The Non-
union Era (Cambridge, 1960), 149 If., chap. VIII; U.S. Bureau of Labor
Statistics, Bulletin No. 218 (Washington, 1917), 15-16.

8. William C. Beer to H. K. Smith, Aug. 23, 1907; Smith to Cyrus McCor-
mick, Aug. 8, 1907, BOC Mss.

9. H. K. Smith, “Memorandum of Interview in Re International Harvester
Company, On January 18, 1907”; Smith, “Memorandum in Re Second Inter-
view With International Harvester Company on January 19, 1907,” BOC Mss;
Garfield, Diary, Jan. 19, 1907, JG Mss. Also see George Perkins to Oscar
Straus, Dec. 18, 1906; Cyrus McCormick to Garfield, Dec. 28, 1906, BOC Mss.

10. Smith, “Memorandum of Interview With Commissioner Smith on April
1, 1907, by Messrs. Harold F. McCormick and Cyrus H. McCormick . . .,”
BOC Mss. Also Paul D. Cravath to Charles J. Bonaparte, March 30, 1907,
BOC Mss.

11. Smith to Roosevelt, Sept. 21, 1907, in Senate Doc. No. 604, 62:2, 4-8.
Also see Roosevelt to Bonaparte, Aug. 22, 1907, LTR, V, 763; Bonaparte to
Roosevelt, Aug. 26, 1907, CB Mss; William C. Beer to H. K. Smith, Aug. 23,
1907, BOC Mss; Oscar S. Straus to Roosevelt, Sept. 23, 1907; William Loeb,
Jr., to Bonaparte, Sept. 24, 1907, Senate Doc. No. 604, 8-9.

12. Taft statement, April 28, 1912; B. D. Townsend to Charles D. Hilles,
April 28, 1912, WT Mss.

13. Bonaparte to Roosevelt, Sept. 8, 1907; Roosevelt to Bonaparte, Sept. 10,
1907, CB Mss. Also see Virgil P. Kline to Garfield, Nov. 17, 1905; Garfield to
Kline, Dec. 1, 1905; Kline to Garfield, March 21, 26, April 20, 1906; Garfield
to Kline, April 13, 27, 1906; H. K. Smith to Kline, April 19, 1906, BOC Mss;
Washington Post, March 10, 1906; Nevins, John D. Rockefeller, II, 559-78;
New York Tribune, May 3, 1906; MP, 7293-96; William H. Moody, Memo on
Standard Oil, June 21, 1906, WM Mss; Roosevelt to Moody, Sept. 13, 1906,
LTR, V, 409; Roosevelt to Bonaparte, Aug. 17, 1907; Bonaparte to Roosevelt,
Aug. 21, Sept. 20, 1907, CB Mss.

14. Diary, Sept. 21, 29, 1907, JG Mss. Also Standard Oil Co., to Bonaparte,
Sept. 29, 1907, CB Mss.

15. Garfield Diary, Oct. 2, 25, 29, Nov. 5, 1907, JG Mss; Harvey, Henry
Clay Frick, 308-09; Bonaparte to Roosevelt, June 26, July 2, 3, 6, 1908; Bona-
parte to John D. Archbold, July 30, 1908; Roosevelt to Bonaparte, June 26,
July 31, 1908, CB Mss.

16. Roosevelt to Bonaparte, June 6, 1908, LTR, VI, 1059; Chicago Exam-
iner, June 1, 2, 1908; Peter S. Grosscup, “How to Save the Corporation,”
McClure's Magazine, XXIV (1905), 443-48; Boston Journal, July 27, 1908;
Garfield Diary, Sept. 18, 1908, JG Mss.

17. Thomas Fortune Ryan to Root, [March, 1907], ER Mss. Also see W. W.
Fuller to Root, Dec. 29, 1906; T. F. Ryan to Root, Jan. 15, Feb. 8, 1907; W. R.
Harris to Fuller, Jan. 24, 1907; Fuller to Root, Jan. 30, 31, Feb. 23, 1907, ER
Mss.

317

18. Fuller to Root, May 2, 1907, ER Mss. The first Bureau report was not
released until February, 1909. Also see Fuller to Root, March 13, 20, 23, 27,
28, April 9, 1907; undated memo [March, 1907] by Fuller; T. F. Ryan to Root,
[March, 1907], ER Mss.

19. MP, 7033, 7137, 7343, 7078-79; also see 7144, 7039, 7202-04.

20. Andrew Carnegie, Problems of Today: Wealth-Labor-Socialism (New
York, 1908), 4; George W. Perkins, The Modern Corporation, at Columbia
University, February 7, 1908 (no place, 1908), 2, 13-17; Roosevelt to Perkins,
Feb. 11, 1908, LTR, VI, 939. Also see MP, 7044.

21. Bonaparte to Roosevelt, Jan. 22, 1908, CB Mss. Also see Bonaparte to
Roosevelt, Nov. 6, 1907; Bonaparte to Joseph Daniels, Oct. 2, 1908, AG Mss.

22. Roosevelt to Henry Lee Higginson, Feb. 11, 1907, LTR, V, 584; MP,
7039; Roosevelt to Henry Cabot Lodge, Aug. 14, 1907, LTR, V, 750.

23. Garfield to Oscar Straus, March 4, 1907, BOC Mss. Also see Elihu Root,
Addresses on Government and Citizenship (Cambridge, 1916), 257-89; L. M.
Shaw to Aldrich, Aug. 21, 1906, NA Mss; Oscar S. Straus, Under Four Admin-
istrations: From Cleveland to Taft (Boston, 1922), 195-214; William Loeb to
Aldrich, Jan. 8, 10, Dec. 2, 1907, NA Mss; Roosevelt to Henry Lee Higginson,
Feb. 19, 1908, LTR, VI, 948; Washington Star, June 9, 1906.

24. National Civic Federation, Proceedings of the National Conference on
Trusts and Combinations (New York, 1908), 174, 453-55. Also see Kennan,
Harriman, II, 192-208; Roosevelt to Thomas M. Patterson, April 8, 1907, LTR,
V, 642.

25. Roosevelt to Seth Low, Oct. 30, 1907, LTR, V, 824-25; MP, 6977, 7039,
7079. Also see H. K. Smith to Francis G. Newlands, Dec. 2, 1905; Garfield to
Newlands, Feb. 13, 1906; George B. Hanford to Garfield, May 23, 1906, FTCB
Mss; Arthur B. Darling, ed., The Public Papers of Francis G. Newlands
(Boston, 1932), I, 244-45; U.S. Senate, Utility Corporations; 70:1, Part 69-A
(Washington, 1934), 32-36.

26. Francis Lynde Stetson to Perkins, March 13, 1908, GP Mss; H. K. Smith
to John F. Crowell, March 2, 1908, FTCB Mss; Bonaparte to Roosevelt, March
12, 1908, CB Mss. Also see National Civic Federation, Conference on Trusts,
passim; Gerald C. Henderson, The Federal Trade Commission: A Study in
Administrative Law and Procedure (New Haven, 1924), 19-21; U.S. House,
Committee on the Judiciary, Hearings on House Bill 19745; 60: 1 (Washington,
1908), 10-11; Perkins to J. P. Morgan, Feb. 27, 1908; F. L. Stetson to Perkins,
March 10, 1908, GP Mss.

27. N.A.M. report in Senate, Utility Corporations, 57. Also see Perkins to
J. P. Morgan, March 16, 1908; Edgar Bancroft to Perkins, March 28, 1908, GP
Mss; House, Hearings on House Bill 19745, 14 ff., 149, 153, 432-70, 665 ff.;
U.S. House, Select Committee on Lobby Investigation, . . . National Association
of Manufacturers . . .; 63:1 (Washington, 1913), I, 170 ff.; HR 60A-H19.18.

28. MP, 7344. Also see House, Hearings on House Bill 19745, 372 ff.;
Perkins to H. K. Smith, April 18, 1908; Smith to Seth Low, April 13, 1908;
Smith to Perkins, April 20, 1908, BOC Mss.

29. Roosevelt to Low, April 1, 9, 1908, LTR, VI, 987-88, 997. Also Oscar
Straus, “Brief Personal Records as Secretary of Commerce and Labor . . .,"
170, Oscar Straus Papers, Library of Congress.

30. Roosevelt to H. K. Smith, April 14, 1908, LTR, VI, 1007-08.

31. Seth Low to Roosevelt, April 11, 1908, BOC Mss.

318

NOTES

32. Roosevelt to Jonathan Bourne, July 8, 1908, LTR, VI, 1115. Also
Perkins to Seth Low, April 23, 1908; Perkins to J. P. Morgan, April 21, 1908,
GP Mss; Roosevelt to Low, Nov. 21, 1908, LTR, VI, 1374; Bonaparte to Roose-
velt, Dec. 2, 7, 1908, CB Mss.

chapter six — The Failure of Finance Capitalism, 1890-1908

1. Wall Street Journal in U.S. House, Committee on the Judiciary, Bills
and Debates in Congress Relating to Trusts ; 63:2 (Washington, 1914), II, 2116.
Also see The Autobiography of Lincoln Steffens (New York, 1931), 590-91;
Lewis Corey, The House of Morgan (New York, 1930), 127.

2. Fritz Redlich, The Molding of American Banking: Men and Ideas (New
York, 1951), II, 177; also chap. XVIII. Also see Bureau of the Census, Histori-
cal Statistics of the United States, 1789-1945 (Washington, 1949), 266-67; Mar-
quis James and Bessie R. James, Biography of a Bank: The Story of Bank of
America (New York, 1954), chaps. IV, V; U.S. National Monetary Commis-
sion, History of Crises Under the National Banking System (Washington,
1910), 228.

3. Clews, Fifty Years in Wall Street, 577-79. Also see Redlich, Molding of
American Banking, 179, 201-02; J. P. Morgan & Co., Letter in Response to . . .
the Committee on Banking and Currency of the House . . . (New York, Feb. 25,
1913), 10; and esp. F. Cyril James, The Growth of Chicago Banks (New York,
1938), II, chaps. XVIII-XXI.

4. Clews, Fifty Years in Wall Street, 577-80; Margaret G. Myers, The New
York Money Market: Origins and Development (New York, 1931), 240-41;
Historical Statistics, 1789-1945, 640; U.S. House, Subcommittee of the Com-
mittee on Banking and Currency, Money Trust Investigation: Investigation of
Financial and Monetary Conditions in the United States', 62:2 (Washington,
1913), III, 1959.

5. House Committee on Banking, Money Trust Investigation, III, 1655;
also I, 611, III, 1993. Also see William Z. Ripley, Railroads: Finance and Or-
ganization (New York, 1915), 514; Anna R. Burr, The Portrait of a Banker:
James Stillman, 1850-1918 (New York, 1927), 108, 141; Corey, House of
Morgan, 260; Redlich, Molding of American Banking, 379, 390-94; Danielian,
A.T. & T., 63.

6. Daniel Creamer et al.. Capital in Manufacturing and Mining: Its Forma-
tion and Financing (Princeton, 1960), 117, 121, 142; Redlich, Molding of
American Banking, 175, 185, 380; Louis D. Brandeis, Other People's Money —
And How the Bankers Use It (2d ed.. New York, 1932), 48-49.

7. James B. Forgan, Recollections of a Busy Life (New York, 1924), 207.

8. George A. Butler, A Practical Plan of Banking and Currency (New
York, 1893), passim ; various plans filed in HR 53A-F4.1; Redlich, Molding of
American Banking, 210; Henry P. Willis, The Federal Reserve System (New
York, 1923), 7-8; Andrew Carnegie to Stetson, Feb. 12, 1895, FS Mss; George
A. Butler, Remarks to Committee on Banking and Currency, December 12,
1894 (New Haven, 1895), passim ; SEN 53A-J4; U.S. House, Committee on
Banking and Current''’ Hearings and Arguments; 54:1, 2 (Washington, 1897),
5-11, 107-08.

9. The History of the . . . Monetary Convention at Indianapolis, January
12th and 13th, 1897 (no place, no date), 10 ff., 64-65; Report of the Monetary
Commission of the Indianapolis Convention (Chicago, 1898), 11-20, 49-57;
Willis, Federal Reserve System, 9-12; HR 55A-H2.1.

319

10. James, Growth of Chicago Banks, 740-41; MP, 6654; Bankers’ Maga-
zine, LXV (1902), 754; LXIV (1902), 171-72; LXII (1901), 10, 180, 657;
LXIII (1901), 946.

11. U.S. House, Committee on Banking and Currency, Banking and Cur-
rency Reform-, 62; 3 (Washington, 1913), 9; HR 57A-H2.1; Bankers’ Magazine,
LXV (1902), 145; James, Growth of Chicago Banks, 736-37; Esther R. Taus,
Central Banking Functions of the United States Treasury, 1789-1941 (New
York, 1943), 98-104; Osborne, Speculation on the New York Stock Exchange,
149-58.

12. Roosevelt to Grenville M. Dodge, April 22, 1903; Roosevelt to Lucius
N. Littauer, July 22, 1903, LTR, III, 466, 525.

13. Roosevelt to Henry I-ee Higginson, June 13, 1903; Roosevelt to Eben-
ezar J. Hill, July 21, 1903; Roosevelt to Joseph G. Cannon, Aug. 13, 24, 1903,
LTR, III, 488, 522, 565, 570; William B. Allison to Roosevelt, Aug. 19, 1903;
Mark A. Hanna to Aldrich, Aug. 20, 1903, NA Mss.

14. Orville Platt to Aldrich, Aug. 17, 1903, NA Mss; Roosevelt to Joseph G.
Cannon, Aug. 24, 1903, LTR, III, 570-71. Also Roosevelt to J. P. Morgan, Oct.
8, 1903; Roosevelt to John Byrne, Dec. 29, 1903, LTR, III, 627, 684.

15. James, Growth of Chicago Banks, 742 ff.; American Bankers Associa-
tion, Report of the Currency Commission, Nov. 15, 1906 (New York, 1906), 3.
Also Bankers’ Magazine, LXVII (1903), 155; Henry Clews, Address Before
the Minnesota Bankers’ Association, June 21, 1905 (no place, 1905), 10-11;
New York Herald, Jan. 5, 1906.

16. James, Growth of Chicago Banks, 746-47; Roosevelt to Charles N.
Fowler, Jan. 20, 1907, LTR, V, 559.

17. Commercial and Financial Chronicle, LXXXIV (1907), 592; Corey,
House of Morgan, 354; Perkins to J. P. Morgan, May 27, 1907, GP Mss; Roose-
velt to Henry Lee Higginson, Aug. 12, 1907, LTR, V, 745-49; U.S. House,
Committee on Banking and Currency, Hearings and Arguments; 60:1 (Wash-
ington, 1908), 88; Roosevelt to Charles Bonaparte, Jan. 22, 1915, TR Mss;
James, Growth of Chicago Banks, 753.

18. House Committee on Banking, Money Trust Investigation, I, 434; also
430-51, 485. Also James, Growth of Chicago Banks, 756-66; “The Financial
Crisis of October 1907,” GP Mss; George F. Baker to Stephen B. Elkins, Jan.
16, 1908, Stephen B. Elkins Papers, Univ. of West Virginia Library.

19. SEN 60A-J38; HR 60A-H4.1; MP, 7082; Charles N. Fowler, Address
Before the Illinois Manufacturers Association, Dec. 10, 1907 (no place, no
date), passim; House Committee on Banking, Hearings; 60:1, 84-85, passim;
James, Growth of Chicago Banks, 774-76; SEN 60A-K.7; SEN 60A-K8; George
F. Baker to Stephen B. Elkins, Jan. 16, 1908, Elkins Papers; Perkins to J. P.
Morgan, March 16, 1908, GP Mss; Forgan, Recollections of a Busy Life, 189.

20. Roosevelt to Hermann H. Kohlsaat, Jan. 15, 1908; Roosevelt to Henry
Lee Higginson, Feb. 19, 1908, LTR, VI, 908, 949.

21. U.S. House, Committee on Banking and Currency, Hearings on the
Aldrich Bill; 60:1 (Washington, 1908), pt. VIII, 4. Also see House Committee
on the Judiciary, Bills and Debates . . . Relating to Trusts, II, 2154; Perkins to
J. P. Morgan, March 16, April 7, 21, May 22, 1908, GP Mss; Annals of the
American Academy of Political and Social Science, XXXI (March, 1908),
passim.

22. Roosevelt to William Howard Taft, Aug. 29, 1908, LTR, VI, 1203.

320 NOTES

chapter seven — The Ordeal of William Howard Taft, 1909-1911

1. Ray Stannard Baker, “What the U.S. Steel Corporation Really Is, and
How It Works,” McClure’s Magazine, XVIII (Nov. 1901), 7; David Chalmers,
“Ray Stannard Baker’s Search for Reform,” Journal of the History of Ideas,
XIX (1958), 422-34; David Graham Phillips, The Treason of the Senate (New
York, 1953), 66, 70; Russell, Greatest Trust in the World, Til ff.; C. C. Regier,-
The Era of the Muckrakers (Chapel Hill, 1932), 197 and passim.

2. Marshall M. Kirkman, The Relation of the Railroads of the United
States to the People . . . (Chicago, 1885), 30, 39-40.

3. Bankers' Magazine, LXII (1901), 497-99.

4. C. S. Mellen to Hartford Board of Trade, Jan. 21, 1904, ms in BOC
Mss; William D. Foulke, Fighting the Spoilsmen (New York, 1919), 3, 257-58.

5. Senate Committee on Interstate Commerce, Hearings on ... an Inter-
state Trade Commission, 103.

6. Albert Stickney, Organized Democracy (Boston, 1906), 222-24, 240,
267; Willard A. Smith, Business Men and Public Service (Chicago, 1915),
10-13.

7. Remarks of Francis Lynde Stetson, Dinner to the Hon. Charles E.
Hughes, New York, January 22, 1917 (no place, no date), 7. Also see Margue-
rite Green, The National Civic Federation and the American Labor Movement,
1900-1925 (Washington, 1956), 314-22.

8. Perkins to J. P. Morgan, Feb. 25, 1909, GP Mss. Also see Pringle, Taft,
I, 387-402; Senate Committee on Privileges, Campaign Contributions, I, 441,
445; Perkins to J. P. Morgan, July 21, 1908; Perkins to E. H. Gary, July 28,
1908; Gary to Perkins, Aug. 19, 1908, GP Mss; Taft to Aldrich, June 27, 1908,
NA Mss.

9. Pringle, Taft, I, 433; Perkins to Taft, June 17, 1909, GP Mss; Taft to
Guy W. Mallon, Jan. 17, 1910; Taft to Eugene Hale, June 22, 1910; Taft to
Nelson Aldrich, Aug. 15, 1910, HP Mss.

10. MP, 7451, 7453-56. Also see H. K. Smith to E. A. Bancroft, July 26,
1910; E. H. Gary to Smith, Jan. 27, 1910; Smith to Filbert, Feb. 24, 1910, BOC
Mss; Taft to J. B. Brannan, Dec. 1, 1909, HP Mss.

11. Wickersham, Memorandum to Charles Johnston, Feb. 23, 1911; Wicker-
sham to Albert H. Walker, Feb. 28, 1911, AG Mss; George W. Wickersham,
“The Enforcement of the Anti-Trust Law,” Century, LXXXIII (1912), 618;
Reports of the Department of Commerce and Labor, 1910 (Washington, 1911),
396; E. H. Gary to Smith, Feb. 14, 1910; Cyrus H. McCormick to Smith,
March 21, 1911, FTCB Mss.

12. Wickersham to Stetson, Sept. 5, 1910, FS Mss. Also see Perkins to J. P.
Morgan, June 1, 3, 1910, GP Mss; Arthur Meeker to Charles Norton, July 14,
1910; Taft to Sec. of Treasury MacVeagh, July 12, 1910, WT Mss.

13. For the best account of political relations between the two men, see
George E. Mowry, Theodore Roosevelt and the Progressive Movement (Madi-
son, 1946),. passim.

14. Taft to Wickersham, Sept. 1, 1911, HP Mss. Also see Henry Lee Higgin-
son to Taft, Aug. 11, 1910, July 26, 1911; Charles G. Dawes to Charles Norton,
March 23, 1911; Victor Morawetz to Norton, Oct. 11, 1910, WT Mss; Cyrus
Adler, Jacob H. Schiff: His Life and Letters (Garden City, 192-8), I, 290; Taft
to Higginson, July 28, 1911, WT Mss; Wickersham to Albert H. Walker, Feb.
28, 1911, AG Mss. Throughout 1910-12 many businessmen wrote the Dept, of
Justice asking about the legality of existing or proposed actions. The standard

321

response was that it was not policy to pass on the legality of contracts, thereby
increasing business insecurity.

15. A. C. Muhse to H. K. Smith, Oct. 23, 1911, BOC Mss; Wickersham to
Taft, Nov. 4, 7, 1911, WT Mss. Also see Thomas F. Ryan to Elihu Root,
[March, 1907], ER Mss; Luther Conant, Jr., to H. K. Smith, Oct. 26, 1911,
BOC Mss; Annual Report of the Attorney General of the United States, 1911
(Washington, 1911), 4-6.

16. Wickersham to Norton, Oct. 8, 1910, WT Mss. Also Louis Howland to
James P. Homaday, Sept. 19, 1910, WT Mss.

17. Bureau of Corporations, Report . . . on the Steel Industry, Smith to
Luther Conant, Jr., Aug. 29, 1911; Conant to Smith, Aug. 31, 1911, BOC Mss;
House Committee on Investigation of U.S. Steel, Hearings, I, 474-75, 499-505,
521-22; II, 1370 ff.; William H. Baldwin to Charles Nagel, June 5, 1911; Nagel
to Taft, Aug. 1, 1911, WT Mss; Wickersham to Taft, Aug, 30, 1911, HP Mss;
Roosevelt, Outlook, XCIX (1911); Roosevelt to Everett P. Wheeler, Oct. 30,
1911, LTR, Vn, 429.

18. Summary of Argument for United States Steel Corporation . . . October
12, 1914 (no place, 1914), 12. Also see Luther Conant, Jr., to H. K. Smith,
Nov. 3, 4, 1911; Charles Nagel to Charles D. Hilles, Jan. 17, 1912, BOC Mss;
Nagel to Taft, Jan. 17, 19, July 17, 1912; Smith to Nagel, Jan. 18, 1912; Taft
to Nagel, Jan. 20, July 17, 1912, WT Mss.

19. Andrew Carnegie, Problems of Today, 48; Carnegie in New York Times,
Feb. 16, 1909; Perkins to E. A. Bradford, Nov. 27, 1909, GP Mss.

20. New York Financial America, Dec. 1, 1910. Also see B. J. Ramage,
“Memorandum for Mr. Todd,” Jan. 2, 1914, AG Mss; Senate, Utility Corpora-
tions, 32, 38-39; Seth Low to Taft, Feb. 19, 1910; Perkins to Carpenter, Feb. 8,
1910, WT Mss.

21. George W. Perkins, The Business Problems of the Day, January 21,
1911 (no place, 1911), 12-13. Also see Perkins, Address Before the Quill Club
of New York, December 20, 1910 (no place, no date), 9.

22. House Committee on Investigation of U.S. Steel, Hearings, I, 79, VIII,
211. Also see Charles Nagel to Taft, June 27, 191 1, WT Mss.

23. Henry Lee Higginson to Taft, July 31, 1911; William W. Laird to Taft,
Aug. 11, 1911, WT Mss; Papers of Newlands, I, 420-22; Senate Committee on
Interstate Commerce, Hearings on ... an Interstate Trade Commission, I, 1-4,
7-14, 17-18, 23.

24. Roosevelt, Outlook, XCIX (1911), 649. Also see Mowry, Roosevelt and
the Progressive Movement, 1 92.

25. Perkins to Charles D. Hilles, Nov. 28, 1911, WT Mss.

26. Senate Committee on Interstate Commerce, Hearings on ... an Inter-
state Trade Commission, 694, 697; also 694 if., 818, 843, 2407-12.

27. National Civic Federation, The Trust Problem: Opinions of 16,000 Rep-
resentative Americans (New York, 1912), 5; Senate Committee on Interstate
Commerce, Hearings on ... an Interstate Trade Commission, 500.

28. Senate Committee on Interstate Commerce, Hearings on ... an Inter-
state Trade Commission, 1089-1123, 1029-31, 1318-24, 1330-36, 1490, 1642-44,
1785; Taft to Wickersham, Sept. 1, 1911; Wickersham to Taft, Nov. 4, 1911,
HP Mss; MP, 7652-55.

29. Senate Committee on Interstate Commerce, Hearings on ... an Inter-
state Trade Commission, 2320 ff., 2354-81; New York Times, Jan. 13, 1912;
Andrew Carnegie to Perkins, Nov. 29, Dec. 23, 1911, Andrew Carnegie Papers,

322

NOTES

Library of Congress; Charles G. Washburn, Address Before the Economic
Club of Springfield, Mass., November 16, 1911 (no place, no date), 19-22;
resolutions in SEN 62A-J49; Perkins to Albert B. Cummins, March 23, 1912;
Cummins to Perkins, March 29, 1912, GP Mss.

30. Francis Lynde Stetson, Address Before Williams College Good Govern-
ment Club, May 8, 1912 (no place, 1912), 27; Joseph T. Talbert, “The Sherman
Anti-Trust Law and the Business of the Country,” Annals of the American
Academy of Political and Social Science, XLII (July, 1912), 219; Gwynn,
Annals of American Academy, XLII (1912), 126, 131. Also see Charles C.
Batchelder, “The Character and Powers of Governmental Regulation Ma-
chinery,” Journal of Political Economy, XX (1912), 397 ff.

31. Quoted in Norton E. Long, “Public Relations Policies of the Bell
System,” Public Opinion Quarterly, I (1937), 20-21. Also see resolutions in
SEN 61A-J54.

32. Theodore N. Vail, Mutual Relations and Interests of the Bell System and
the Public (New York, 1914), 6-7, 9. Also see Annual Report, A.T. <& T., 1911,
35; F.C.C., Telephone Investigation, 155-57; HR 63A-H12.10; Theodore N.
Vail, Views on Public Questions : A Collection of Papers and Addresses (no
place, 1917), 116 ff., 248-50, 263-65.

33. McKercher, “Memorandum For Mr. Fowler,” Nov. 6, 1911, AG Mss;
Milton N. Nelson, Open Price Associations (Urbana, 1922), passim-. National
Industrial Conference Board, Trade Associations (New York, 1925), passim-,
Arthur J. Eddy, The New Competition (New York, 1912), passim.

34. Clews, Fifty Years in Wall Street, 811; differences among bankers are
illustrated in Annals of American Academy, XXXI (1908); J. Laurence Laugh-
lin. The Federal Reserve Act: Its Origins and Problems (New York, 1933), 22;
Paul M. Warburg, The Federal Reserve System: Its Origins and Growth (New
York, 1930), 32 ft'.; U.S. National Monetary Commission, Hearings on Changes
in the Administrative Features of the National Banking Laws, Dec. 2, 3, 1908
(Washington, 1908), 113, 169.

35. Banking Law Journal, XXVI (1909), 942; Paul Warburg to Aldrich,
Dec. 24, 1909, NA Mss. Also see Warburg, Federal Reserve System, 32-36;
Andrew Frame to Aldrich, Oct. 22, 1909, NA Mss; Nathaniel W. Stephenson,
Nelson W. Aldrich: A Leader in American Politics (New York, 1930), 363-66;
Maurice L. Muhleman, “A Plan for a Central Bank,” Banking Law Journal,
XXVI (1909), 883; New York Evening Post, Dec. 10, 1909; Victor Morawetz,
The Banking and Currency Problem and the Central Bank Plan, Nov. 24, 1909
(no place, 1909), passim.

36. Taft to Aldrich, Jan. 29, 1911, HP Mss. Also see Warburg, Federal Re-
serve System, 23, 50-53, 58-61; Laughlin, Federal Reserve Act, 15-16; Stephen-
son, Aldrich, 377-79; Taft to Aldrich, March 30, 1911, NA Mss; Taft to
Franklin MacVeagh, Dec. 23, 1911, HP Mss.

37. Proceedings of a Conference Upon the Suggested Plan for Monetary
Legislation Submitted to the National Monetary Commission by the Hon. Nel-
son W. Aldrich, February 10-12, 1911, typed ms in Aldrich Room, Baker Li-
brary, Harvard Business School, I, 4, II, 441; also see 1, 16-17, 68-69, 92-93, II,
391 ff., 424, 437-40. 474-78, III, 766-69. Also Warburg, Federal Reserve System,
61-63; Commercial and Financial Chronicle, LXXXXII (1911), 430.

38. Warburg, Federal Reserve System, 71; Laughlin, Federal Reserve Act,
58. Also see James, Growth of Chicago Banks, 800-01. During its entire life the
League received $340,000, $150,000 of which came from New York. J. Laur-
ence Laughlin to Arthur H. Weed, April 4, 1914, JL Mss.

323

39. Andrew J. Frame, Conservatism Our Watchword (no place, 1911),
passim', Roosevelt to Elisha E. Garrison, March 3, 1911, LTR, VII, 236; J.
Parker Willis to Laughlin, Jan. 10, 1911, JL Mss; Laughlin, Federal Reserve
Act, 43, 66, 68, 78-79; Warburg, Federal Reserve System, 76-77; Warburg to
Laughlin, July 3, 6, 8, 26, 1911; Laughlin to Warburg, July 5, Sept. 15, 1911,
JL Mss; Chicago Daily Tribune, Aug. 24, 1911.

40. MP, 7684. For opposition to the plan, see James, Growth of Chicago
Banks, 806; Railway World, LV (1911), 871; for support, see James B. Forgan,
Address Before A.B.A. Executive Council, May 1, 1911 (no place, 1911);
George M. Reynolds, Address Before Texas Bankers’ Association, May 16,
1911 (no place, 1911); Joseph T. Talbert, Address Before New York State
Bankers Association, June 22, 1911 (no place, 1911).

CHAPTER EIGHT — The Politics of 1912

1. Perkins, “Memorandum: July 13th, 1911,” GP Mss. Also Perkins to H.
K. Smith, July 3, 1911; Smith to Edgar Bancroft, Dec. 13, 1911; Bancroft to
Smith, Dec. 16, 22, 1911, BOC Mss; Wickersham to Taft, Nov. 4, 1911, WT
Mss.

2. Luther Conant, Jr., to Edgar Bancroft, Sept. 18, 1912, BOC Mss. Also
see Taft to Wickersham, April 24, 1912, HP Mss; Senate Doc. No. 604, 62:2;
Taft statement, April 28, 1912, WT Mss.

3. Perkins to Judson Harmon, Nov. 14, 1910, GP Mss. Also Perkins to J.
P. Morgan, Oct. 11, 1910; Perkins to Roosevelt, Sept. 2, 1911, GP Mss.

4. Edwin W. Sims to James R. Mann, Jan. 6, 1912, James R. Mann Papers,
Library of Congress.

5. John A. Garraty, Henry Cabot Lodge (New York, 1953), 286-87;
George Britt, Forty Years — Forty Millions: The Career of Frank A. Munsey
(New York, 1935), 144-50, 167-71, 182; Memo of Jan. 23, 1912 meeting in
WT Mss.

6. Perkins to Alex. Hawes, March 21, 1912, GP Mss. Also Perkins to W.
F. Wiley, March 29, 1912; Perkins memos to Roosevelt, March 11 [two], 12,
1912, GP Mss.

7. Perkins to William B. McKinley, April 29, 1912, WT Mss. Also Perkins
to Alex. Hawes, April 22, 1912, GP Mss.

8. Amos Pinchot, The History of the Progressive Party (New York, 1958),
165-66. Also see Mowry, Roosevelt and the Progressive Movement, 248 If.;
Garraty, Life of Perkins, 262-63.

9. George E. Mowry, The California Progressives (Berkeley, 1951), chaps.
II, IV; Alfred D. Chandler, Jr., “The Origins of Progressive Leadership,” LTR,
VIII, 1462-65.

10. Albert J. Beveridge, Pass Prosperity Around (no place, 1912), 8, 1 1.

11. Theodore Roosevelt's Confession of Faith Before the Progressive Na-
tional Convention, August 6, 1912 (New York, 1912), passim', Mowry, Roose-
velt and the Progressive Movement, 266.

12. Pinchot, History of the Progressive Party, 173-77.

13. Taft to George B. Edwards, April 22, 1912, HP Mss.

14. J. P. Morgan, Jr., to Perkins, Aug. 19, 1912; Perkins to Morgan, Jr.,
Aug. 19, 1912, GP Mss.

15. Britt, Career of Frank A. Munsey, 167; Judson C. Welliver, Catching
Up With Roosevelt [reprint from Munsey’s Mazagine, March, 1912], Also see
Pinchot, History of the Progressive Party, 178; Garraty, Life of Perkins, 273 IT.

324

NOTES

16. Taft to Charles D. Hilles, Oct. 4, 1912, HP Mss; Senate Committee on
Privileges, Campaign Contributions, II, 1 124-29; “Party Contributions,’’ PP Mss.

17. Roosevelt to Arthur H. Lee, Nov. 5, 1912, LTR, VII, 633. Also see
Mowry, Roosevelt and the Progressive Movement, 284 ff.; Harold L. Ickes,
“Who Killed the Progressive Party,” American Historical Review, XLVI
(1941), 306-37.

18. Donald R. Richberg, “ ‘Five Brothers’ or “Trust Triplets’,” Outlook, CVI
(1914), 638-48; George W. Perkins, National Action and Industrial Growth,
February 12, 1914 (no place, 1914); Hiram Johnson to Perkins, Nov. 17, 1914;
Roosevelt to Charles Bonaparte, May 29, 1916; Roosevelt to Progressive Party
National Conference, June 10, 1916, GP Mss; Perkins, mimeo circular, Feb. 18,
1916, CB Mss.

19. Pinchot, History of the Progressive Party, 76 ff., 184-200, 246-47;
Mowry, Roosevelt and the Progressive Movement, 198; AP Mss, files 26, 69,
74, 138.

20. Perkins to Wilson, Nov. 10, 1910, GP Mss. Also see William Diamond,
The Economic Thought of Woodrow Wilson (Baltimore, 1943), 17-19, 39-55;
Arthur S. Link, Wilson: The New Freedom (Princeton, 1956), 62-63; George
Harvey, The Power of Tolerance (New York, 1911), 174-78; Arthur S. Link,
Wilson: The Road to the White House (Princeton, 1947), 97 ff., 113-20; Willis
F. Johnson, George Harvey — A Passionate Patriot (Boston, 1929), 49-77, 105-
41; PWW, II, 57-58.

21. PWW, II, 254-55.

22. PWW, II, 410-11. Also see II, 323-24, 358-59.

23. PWW, II, 420.

24. House Committee on the Judiciary, Bills and Debates . . . Relating to
Trusts, III, 2953.

25. Robert F. Hoxie, Scientific Management and Tabor (New York, 1915),
147. Also see Louis D. Brandeis, Business — A Profession (Boston, 1914), 13-27,
40-45; Oscar Kraines, “Brandeis’ Philosophy of Scientific Management,” West-
ern Political Quarterly, XIII (1960), 191-201; Alpheus T. Mason, Brandeis: A
Free Man’s Life (New York, 1946), 142-49; Clarence B. Thompson, ed.. Sci-
entific Management (Cambridge, 1914), passim.

26. Brandeis, Business — A Profession, 2, 12; also 57 ff. Also see Mason,
Brandeis, 368-78.

27. Woodrow Wilson, The New Freedom (New York, 1913), 164-66, 180,
190, 257.

28. PWW, II, 28.

29. Wilson, New Freedom, 201-02; also 205.

30. Henry Lee Higginson to Stetson, Aug. 22, 1912, FS Mss; Henry Selig-
man to Isaac Seligman, Oct. 1, 1912, HS Mss. Also see Link, Road to the White
House, 485; Adler, Jacob H. Schiff, I, 302-12; Johnson, George Harvey, 216-18.

31. La Follette, Autobiography, 388. Also 479-81, 676.

32. For valuable insights into La Follette and his followers, see Frontis W.
Johnston, The Evolution of the American Concept of National Planning, 1865-
1917 (Unpublished Ph.D. thesis, Yale Univ., 1938), chap. X; Charles Mc-
Carthy, The Wisconsin Idea (New York, 1912), 191 ff., 296 ff.

33. Herbert Croly, The Promise of American Life (New York, 1909), 154.
Also see John R. Everett, Religion in Economics: A Study of John Bates Clark,
Richard T. Ely, Simon N. Patten (New York, 1946), 140-44; Joseph Dorfman,
“The Role of the German Historical School in American Economic Thought,”

325

American Economic Review, XLV (1955), 17-28; Charles F. Thwing, The
American and the German University (New York, 1928), 41-45.

34. Herbert Croly, Progressive Democracy (New York, 1914), 113; also
16-18. Also see Croly, Hanna, passim; Croly, Willard Straight (New York,
1924), passim.

chapter nine — Woodrow Wilson and the Triumph of Political
Capitalism : Banking

1. Paul Warburg to Laughlin, Jan. 8, 1912, JL Mss; Banking Reform, I
(Jan. 29, 1912), 4, 12; H. Parker Willis to Laughlin, Feb. 15, 1912, JL Mss;
J. Laurence Laughlin, ed., Banking Reform (Chicago, 1912); Laughlin, Federal
Reserve Act, 90-91, 105.

2. Carter Glass, An Adventure in Constructive Finance (New York, 1927),
69. Also see Willis, Federal Reserve System, 109, 116, 136-38; Laughlin, Federal
Reserve Act, 100-01.

3. Willis to Laughlin, May 2, 1912, JL Mss. Also Willis to Laughlin, March
23, 30, April 7, 1912, JL Mss.

4. Willis to Laughlin, June 17, 1912, JL Mss.

5. Samuel Untermyer, Address Before the Economic Club of New York,
November 22, 1911 (no place, no date), 25-26. Also see Laughlin, Federal Re-
serve Act, 81-84; Banking Reform, I (July 3, 1912), 1, 4.

6. Journal of Commerce, July 6, 1912; also Aug. 7, 1912. Also see House
Committee on Banking, Money Trust Investigation, I, 101.

7. Willis to Laughlin, July 14, 18, 1912, JL Mss.

8. Willis to Laughlin, Aug. 26, 1912, JL Mss; Banking Reform, 1 (Nov. 1,
1912), 1. Also Banking Reform, I (Sept. 2, 1912), 1-5.

9. Laughlin to A. B. Hepburn, Nov. 4, 1912; Hepburn to Laughlin, Nov. 0,
1912, JL Mss. Also see Diamond, Economic Thought of Wilson, 101; Charles
Seymour, ed.. The Intimate Papers of Colonel House (Boston, 1926), I, 94

10. Laughlin to Willis, Nov. 21, 1912, JL Mss. Also see Laughlin, Federal
Reserve Act, 115-21.

11. Willis to Glass, Dec. 7, 1912, CG Mss; Willis to Laughlin, Dec. 18, 22,
1912, JL Mss. Also see Laughlin to A. B. Hepburn, Dec. 18, 1912, JL Mss;
Laughlin, Federal Reserve Act, 121-22.

12. Laughlin, Federal Reserve Act, 121-24.

13. Glass, Adventure in Constructive Finance, 83-84.

14. Willis, Federal Reserve System, 141-43; Seymour, Intimate Papers of
House, I, 161; Glass, Adventure in Constructive Finance, 83-84.

15. Glass to Willis, Dec. 29, 1912; Willis to Glass, Jan. 3, 1913, CG Mss.
Also see Glass, Adventure in Constructive Finance, 91; Warburg, Federal Re-
serve System, I, 82.

16. Willis to Glass, Dec. 31, 1912, CG Mss; Laughlin, Federal Reserve Act,
131.

17. House Committee on Banking, Banking and Currency Reform, 4, 9, 69-
75. Also Warburg, Federal Reserve System, 90-91.

18. House Committee on Banking, Banking and Currency Reform, 206, 213,
354-55, 377.

19. Glass to Festus Wade, Jan. 24, 1913, CG Mss. Also Willis to Glass, Jan.
18, 1913, CG Mss.

20. Laughlin to Glass, Jan. 21, 1913, CG Mss; Willis to Laughlin, Jan. 23,
Feb. 6, 18, 22, 1913, JL Mss; Laughlin, Federal Reserve Act, 136; Laughlin to

326

NOTES

Willis, Feb. 19, 1913, JL Mss; Banking Reform, II (Feb. 1, 1913), 6; Willis,
Federal Reserve System, 1531-53.

21. Higginson to Wilson, Feb. 7, 27, 1913, HH Mss; Seymour, Intimate
Papers of House, 161; letters in WW Mss, ser. VI, box 138; CG Mss, box 27;
HR 62A-H2.1; HR 63A-H3.1.

22. Willis, Federal Reserve System, 391; also 169-93, 389-92. Also see
Laughlin to Wilson, March 5, 1913, WW Mss; Laughlin to Glass, March 14,
1913, CG Mss; Banking Reform, II (March 5, 1913), 8; Seymour, Intimate
Papers of House, 161-62; E. F. Swinney to Glass, March 31, 1913; Glass to
Swinney, April 3, 1913, CG Mss; Warburg, Federal Reserve System, 91-92.

23. Charles A. Morss to Laughlin, March 18, 1913, IL Mss. Also see
Laughlin, Federal Reserve Act, 136; Willis, Federal Reserve System, 177-91;
Warburg, Federal Reserve System, 92-96.

24. George Reynolds to Glass, April 18, 1913, CG Mss; Seymour, Intimate
Papers of House, 162.

25. Glass, Adventure in Constructive Finance, 95; also 96, 106-07. Also see
Willis to Laughlin, April 16, May 13, 17, 22, 27, 1913; Laughlin to Willis, May
24, 31, 1913, JL Mss; Laughlin to Glass, May 2, 1913, CG Mss.

26. Reynolds to Glass, June 7, 1913, CG Mss. Also see Warburg, Federal
Reserve System, 97; Glass, Adventure in Constructive Finance, 107-09; Link,
The New Freedom, 210; George M. Reynolds to Glass, June 4, 9, 1913; Glass
to Willis, June 9, 1913; Glass to A. Barton Hepburn, May 30, 1913; Hepburn
to Glass, June 5, 1913, CG Mss; Samuel Untermyer to Robert Owen, June 13,
1913, WW Mss.

27. Glass to Hepburn, June 7, 1913, CG Mss. Also Glass to Willis, June 9,
1913, CG Mss.

28. Glass to Wilson, June 18, 1913; Hepburn to Glass, June 23, 1913, CG
Mss; PWW, III, 37.

29. Glass, Adventure in Constructive Finance, 116. Also see V. Sidney Roth-
schild to Glass, June 24, 1913, CG Mss; Brandeis to Wilson, June 14, 1913,
WW Mss.

30. George Reynolds to Glass, June 30, 1913, CG Mss. Also Glass, Adven-
ture in Constructive Finance, 117-18.

31. Glass to Festus Wade, July 1, 1913; George Reynolds to Glass, July 7,
1913, CG Mss.

32. Banking Law Journal, XXX (1913), 554. Also see Chicago Banker,
XXX (July 26, 1913), 1; Bankers Magazine, LXXXVII (1913), 131.

33. Samuel Ludlow, Jr., to Joseph Tumulty, July 28, 1913, WW Mss. Also
see Byron Smith to Glass, July 3, 1913, CG Mss; Josiah Quincy to Tumulty,
July 15, 1913, WW Mss.

34. “Congressman Eagle Analyses and Opposes the Glass Banking and
Currency Bill,” July 31, 1913, 10, in WW Mss. Also W. J. Bryan to Glass, Aug.
22, 1913, CG Mss; Link, The New Freedom, 218-23; Glass, Adventure in Con-
structive Finance, 127 ff.

35. Glass to Wade, July 23, 1913, CG Mss. Also see U.S. Senate, Committee
on Banking and Currency, Hearings on II. R. 7837; 63:1 (Washington, 1913),
II, 1183; SEN 63A-J4.

36. Vice-president of Bank of Commerce and Trusts, Richmond, July 29,
1913, in CG Mss; Senate Committee on Banking. Hearings on H.R. 7837, I, 30;
also I, 5-21. Also see SEN 63A-J4; James, Growth of Chicago Banks, 810-12;
Willis, Federal Reserve System, 397-98.

327

37. Robert H. Treman to Glass, Aug. 30, 1913, CG Mss; James V. Farwell
to Wilson, July 22, 1913, WW Mss. Also see McLane Tilton, Jr., to Glass, Sept.
3, 1913, CG Mss; John S. Williams to Wilson, Aug. 23, 1913, WW Mss; HR
63A-H3.3; Banking Reform, II (July 1, 1913), 1 if.; II (Sept. 1, 1913), 12 If.;
John V. Farwell to Laughlin, Aug. 12, 20, 1913, JL Mss; Laughlin to Glass,
Sept. 3, 1913, CG Mss.

38. Willis, Federal Reserve System, 418; Harry A. Wheeler to Laughlin,
Aug. 19, 1913, WW Mss. Also N.A.M., Proceedings of the Eighteenth Annual
Convention, May 19-21, 1913 (New York, 1913), 205-06.

39. A. Barton Hepburn, “Criticisms of the Proposed Federal Reserve Bank
Plan,” Proceedings of the Academy of Political Science, IV (Oct. 1913), 101.
Also Banking Law Journal, XXX (1913), 703; Bankers Magazine, LXXXVII
(1913), 369; Senate Committee on Banking, Hearings on H.R. 7837, 1, 27, 49,
223, 290, 546; III, 2131, 2170; HR 63A-H3.1; Irving T. Bush, “The Business
Man and the Note-Issue Provisions of the Federal Reserve Act,” Proceedings
of the Academy of Political Science, IV (1913), 174-76; Paul M. Warburg,
“The Owen-Glass Bill as Submitted to the Democratic Caucus,” North Ameri-
can Review, CXCVIII (1913), 527-55.

40. American Bankers Association, Proceedings of the Thirty-Ninth Annual
Convention, Oct. 7-10, 1913 (New York, 1913), 103; also 79, 87-88, 95 ff., 103,
113.

41. W. T. Fenton to L. Y. Sherman, Oct. 15, 1913, SEN 63A-J4. Also
Samuel Ludlow, Jr., to Wilson, Oct. 7, 1913, WW Mss; Frank A. Vanderlip to
Glass, July 24, 1913, CG Mss.

42. Carter Glass, “The Opposition to the Federal Reserve Bank Bill," Pro-
ceedings of the Academy of Political Science, IV (1913), 19; Festus Wade to
Wilson, Oct. 25, 1913, WW Mss. Also W. G. McAdoo to Wilson, Oct. 28, 1913,
WW Mss.

43. Belle C. La Follette and Fola La Follette, Robert M. La Follette (New
York, 1953), I, 486; Henry Lee Higginson to Richard Olney, Nov. 1913, WW
Mss. Also see Link, The New Freedom, 233-37; Adler, Jacob H. Schiff, I, 272-
88; St. Louis Republic, Nov. 20, 1913; Burr, James Stillman, 280-81; Thomas
W. Lamont, Henry P. Davison (New York, 1933), 103.

44. Frank A. Vanderlip, “The Rediscount Functions of the Regional Banks,”
Proceedings of the Academy of Political Science, IV (1913), 144; F. A. Van-
derlip, Address Before the Economics Club of New York, November 13, 1913
(New York, 1913), 6, 11 ff. Also see Glass, Adventure in Constructive Finance,
168-76; Outlook, CV (1913), 379.

45. Banking Reform, II (Oct. 1, 1913), 6-7. Also see Jessup, Elihu Root, II,
246; Samuel Untermyer to Tumulty, Nov. 16, 1913, WW Mss; Glass to War-
burg, Dec. 3, 1913; Glass to J. H. Tregoe, Dec. 16, 1913; Glass telegrams to
Hepburn, Reynolds, Wheeler, Wexler, Dec. 12, 1913, CG Mss.

46. Warburg to Glass, Dec. 23, 1913, CG Mss; Warburg to Laughlin, Feb.
2, 1914, JL Mss; Laughlin, “The Banking and Currency Act of 1913," Journal
of Political Economy, XXII (1914), 435. Also see Glass, Adventure in Con-
structive Finance, 235; Bulletin of the National Association of Credit Men, XIV
(Jan. 15, 1914), 15, 39; Chicago Banker, XXX (Dec. 27, 1913), 1, 21.

47. Aldrich to John A. Sleicher, July 16, 1913; Aldrich to Taft, Oct. 3, 1913,
NA Mss. Also see H. P. Davison to Aldrich, July 18, 1913, NA Mss.

48. Jessup, Elihu Root, II, 247. Also see Lamont, Henry P. Davison, 103-04;
Herbert L. Satterlee, J. Pierpont Morgan: An Intimate Portrait (New York,

328

NOTES

1939), 550; Michael C. Rockefeller, Nelson W. Aldrich and Banking Reform
(Unpublished honors thesis. Harvard College, 1960), 90 ff.

49. Glass, Adventure in Constructive Finance, 239 ff.; Willis, Federal Re-
serve System, 523-30.

50. Warburg, Federal Reserve System, I, 178-406, chap. IX; Elmer A. Lewis,
ed., Federal Reserve Act of 1913 (Washington, 1941), 1-27; H. Parker Willis,
“The Federal Reserve Act,” American Economic Review, IV (March, 1914),
1-24.

51. John S. Williams to Wilson, Jan. 24, 1914, WW Mss. Also California
Bankers Association, Proceedings of the Twentieth Annual Convention, May
27-29, 1914 (San Francisco, 1914), 87; Kansas Bankers Association, Proceed-
ings of the Twenty-seventh Annual Convention, May 21-22, 1914 (Topeka,
1914).

52. Willis to Glass, Dec. 25, 1913, CG Mss; Aldrich to John A. Sleicher,
Feb. 7, 1914, NA Mss. Also see S. R. Bertron to Wilson, Feb. 14, 1914, WW
Mss.

53. Wilson to Olney, April 30, 1914; Wilson Statement to the Press, July 8,
1914, WW Mss. Also see W. P. G. Harding, The Formative Period of the Fed-
eral Reserve System (Boston, 1925), 1-2; Wilson to House, March 30, 1914;
House to Wilson, April 3, 1914; Wilson to Warburg, April 30, 1914; Warburg
to Wilson, May 1, 1914; H. A. Wheeler to Wilson, May 15, 1914; Norbert R.
Pendergast to Joseph Tumulty, May 5, 13, 1914, WW Mss; Willis to Charles F.
Adams, Jr., May 14, 1914, Adams Papers, Mass. Historical Society; W. W.
Flannagan to Glass, May 29, 1914, CG Mss; Link, The New Freedom, 452-56.

54. Wilson to E. C. Simmons, June 23, 1914; Edward W. Decker to Wilson,
Aug. 3, 1914, WW Mss.

55. Lester V. Chandler, Benjamin Strong: Central Banker (Washington,
1958), 37 ff. Also see Journal of the American Bankers Association, VIII
(1916), 872; James, Growth of Chicago Banks, 873-77; Jessup, Elihu Root, II,
248.

56. Warburg to House, May 12, 1914, WW Mss. Also see William G. Mc-
Adoo, Crowded Years (Boston, 1931), 285-86.

57. Journal of the American Bankers Association, VHT (1915), 467. Also
see Opinion of T. W. Gregory, April 14, 1916, WW Mss; Glass, Adventure in
Constructive Finance, 265-66; Harding, Formative Period of Federal Reserve
System, 35-36; Warburg, Federal Reserve System, 157 ff., 439, 773; American
Bankers Association, Proceedings of the Forty-Second Annual Convention,
Sept. 25-30, 1916 (New York, 1916), 189.

58. Benjamin Strong, Interpretations of Federal Reserve Policy (New York,
1930), 8-9, 65.

59. Lawrence E. Clark, Central Banking Under the Federal Reserve System
(New York, 1935), 397-98; also 161-63, 302-04, 353-58. Also see Chandler,
Benjamin Strong, 41-47, 77-79, 93-103; H. Parker Willis, The Theory and
Practice of Central Banking (New York, 1936), 90-102; William O. Weyforth,
The Federal Reserve Board (Baltimore, 1933), 163-64; Benjamin H. Beckhart,
The New York Money Market: Use of Funds (New York, 1932), 210; Benja-
min H. Beckhart and James G. Smith, The New York Money Market: Sources
and Movements of Funds (New York, 1932), 221, 260; Myers, New York
Money Market, 428.

60. Willis, Theory and Practice of Central Banking, 95; Congressional Rec-
ord, LIII, pt. 14, 64:1, 755.

329

chapter ten — The Triumph of Political Capitalism: The Federal

Trade Commission and Trust Legislation

1. Wilson, The New Freedom, 180; House Committee on Judiciary, Bills
and Debates . . . Relating to Trusts, III, 2953.

2. Joseph B. Foraker to J. G. Schurman, Nov. 19, 1912, Foraker Papers,
Library of Congress; Pringle, Taft, II, 863-64; lohnson, George Harvey, 232-33.

3. Arthur Eddy to Clark McKercher, April 22, 1913, AG Mss. Also see
Theodore Roosevelt, The Progressive Party (Washington, 1913), 25; New York
World, March 3, 1913.

4. Joseph E. Davies, “Memorandum Re . . . Future Plan of Work of Bu-
reau of Corporations,” July 30, 1913, WW Mss. Also see Ralph W. Easley to
McReynolds, Oct. 20, 1913; McReynolds to Easley, Oct. 21, 1913, AG Mss;
N.C.F. proposal, Dec. 16, 1913; Easley to Joseph E. Davies, Jan. 15, 1914,
FTCB Mss.

5. Wilson to McReynolds, Dec. 19, 1913, WW Mss; Robert E. Cushman,
The Independent Regulatory Commissions (New York, 1941), 192-93.

6. MP, 7914, 7916; W. Speyer to Wilson, Jan. 22, 1914; Henry E. Smith to
Wilson, Jan. 25, 1914; Wilson to Seth Low, Jan. 27, 1914, WW Mss. Also see
Low to Wilson, Jan. 22, 1914, WW Mss.

7. Wilson to John S. Williams, Jan. 27, 1914, WW Mss. Also see Joseph
Davies to Wilson, Feb. 10, 1914, WW Mss; U.S. House, Committee on the
Judiciary, Hearings on Trust Legislation ; 63:2 (Washington, 1914), 1567-83.

8. House Committee on Judiciary, Hearings on Trust Legislation, 133 ff.,
167 ff„ 191 IT., 335, 452 IT., 681, 767, 786, 1331, 1401 ff., 1682; Frank Trum-
bull to Wilson, Feb. 17, 1914; John P. Dwyer to Wilson, Jan. 29, 1914; Stuy-
vesant Fish to Wilson, Dec. 17, 1913; Edward L. Howe to Wilson, Feb. 10,
1914, WW Mss.

9. U.S. Senate, Committee on Interstate Commerce, Hearings on Bills Re-
lating to Trust Legislation. Interstate Trade ; 63:2 (Washington, 1914), 54 ff.,
162-64, 662 ff., 688-94, 1009-1201; Chicago Association of Commerce, Chicago
Plan for Amendment to the Sherman Anti-Trust Law, included with Thomas
Creigh to Tumulty, Feb. 12, 1914, WW Mss; Chamber of Commerce of the
State of New York, Resolutions and Reports of Anti-Trust Legislation (New
York, 1914); SEN 63A-J37.

10. Belle and Fola La Follette, La Follette, I, 488. Also see Henry Lee Hig-
ginson to Elihu Root, Feb. 21, 1914, SEN 63A-J37; Marc Karson, American
Labor Unions and Politics, 1900-1918 (Carbondale, 1958), 77; Link, The New
Freedom, 427-33; SEN 63A-J44; SEN 63A-J43.

11. Chamber of Commerce, Referendum No. 8, May 25, 1914 (Washington,
1914), 3, 6. Also see Senate Committee on Interstate Commerce, Interstate
Trade, 688-89; National Association of Manufacturers, Nineteenth Annual
Convention, May 19, 20, 1914 (New York, 1914), 125-27 .

12. George Rublee, “The Original Plan and Early History of the Federal
Trade Commission,” Proceedings of the Academy of Political Science, XI
(1926), 114-20; Franklin K. Lane to Wilson, July 10, 1914, WW Mss; Link,
The New Freedom, 438.

13 PWW. Ill, 135-38. Also see J. R. Moorehead to Wilson, July 14, 1914;
J. Leyden White to Wilson, June 18, 1914, WW Mss.

14. Thomas Creigh to Davies, July 23, 1914, FTCB Mss; Creigh to Wilson,
.Time 15, 1914, WW Mss; Davies to Creigh, Aug. 12, 1914, FTCB Mss. Also see
Davies to Creigh, Aug. 3, 1914; Davies to Wilson, Aug. 21, 1914; Gilbert H.

330

NOTES

Montague to Davies, Feb. 24, 25, Aug. 19, 1914, FTCB Mss; Chicago Asso-
ciation of Commerce, Notes on Federal Trade Commission Bill H.R. 15613
(Chicago, 1914); Merchants’ Association of New York, Report of Special
Committee on Anti-Trust Bills (New York, May 22, 1914).

15. Joseph H. Defrees to Wilson, Oct. 15, 1914, WW Mss; Remarks of
Francis Lynde Stetson on Taking the Chair Upon the Organization of the
Martin H. Glynn Campaign . . ., Oct. 13, 1914 (no place, 1914), no page. Also
see Perkins in New York Times, Nov. 18, 1914; Arthur J. Eddy to Samuel J.
Graham, Nov. 4, 1914, WW Mss.

16. Wilson to Powell Evans, Oct. 20, 1914, WW Mss; PWW, III, 211; Frank
Trumbull to Wilson, Nov. 18, 1914, WW Mss; MP, 8015. Also see Davies to
Tumulty, Nov. 23, 1914; Tumulty to Wilson, Dec. 4, 1914, WW Mss.

17. PWW. Ill, 258; also 267-79. Also see MP, 8033-34; Davies, “Govern-
ment and Business,” Dec. 17, 1914, in WW Mss.

18. F.T.C. to John M. Stanton, March 27, 1916; Secretary of F.T.C. to C.
A. Dewberry, April 25, 1916, FTC Mss. Also Link, Road to the While House,
143; S. M. Hastings to Davies, April 13, 1915, FTC Mss; Pendleton Herring,
"The Federal Trade Commissioners,” George Washington Law Review, VIII
(1940), 343; Herring, Federal Commissioners: A Study of Their Careers and
Qualifications (Cambridge, 1936), 23; O. G. Villard to Tumulty, Dec. 12, 1914;
Philip A. Crain to Brahany, Feb. 10, 1915, WW Mss; Federal Trade Commis-
sion Decisions, March 16, 1915, To June 30, 1919 (Washington, 1920), 4.

19. United Cigar Stores Co., to F.T.C., April 20, 1915, FTC Mss. Also see
AG Mss, box 3; FTC Mss, files 8501-05, for the F.T.C. effort to answer many
requests and the requests themselves; Frank Vanderlip to Charles Ferguson,
March 19, 1915; Albert B. Cummins to Davies, March 27, 1915; S. M. Hast-
ings to Davies, April 13, 1915, FTC Mss; Davies to Wilson, Aug. 19, 1914,
FTCB Mss; Davies, “Functions of Federal Trade Board,” Bulletin of Efficiency
Society, I (March 31, 1915), 1-5; Davies, “Memorandum in Re Suggested
Powers of Trade Commission To Pass Upon Proposed Contracts, Agreements
and Combinations,” no date, FTC Mss; Rublee, “Outline of an Argument
Against Making Final Orders of the Commission Under Section 5 of the Fed-
eral Trade Commission Act,” no date, FTCB Mss; Rublee, Memo on powers
and duties of FTC, handwritten, no date, FTC Mss.

20. Davies in stenographic report of hearings for Walker Hines, May 5,
1915, 28, FTC Mss. Also see Eddy, “Certain Powers of the Commission,” no
date; stenographic report of hearings with Louis Brandeis, April 30, 1915;
Walker Hines to Rublee, May 4, 1915; Victor Morawetz to Rublee, May 11,
1915; Rush C. Butler to Davies, June 14, 1915; Cornelius Lynde to Davies,
Aug. 23, 1915; Charles Van Hise to Davies, Aug. 23, 1915, FTC Mss.

21. Annual Report of the Federal Trade Commission for the Fiscal Year
Ended June 30, 1916 (Washington, 1916), 52, 8. 57 rulings were issued in the
year ending June 30, 1917. In 1919 such rulings were extended to the proposed
rules of industry groups and trade associations. Also see “Report of Commis-
sioner Parry on a Tentative Plan of Organization for the Federal Trade Com-
mission . . . Adopted June 29, 1915,” FTCB Mss.

22. PWW, IV, 240; Annual Report, 1916, 26; F.T.C. Decisions, 3.

23. Davies to S. M. Hastings, April 21, 1915, FTC Mss; W. L. Petrikin in
Cleveland Plain Dealer, April 20, 1915; Clark, Childs & Co. release. May 26,
1915, in WW Mss.

24. Edward Hurley statement, Dec. 1, 1915, in WW Mss. Also see the many
examples of business enthusiasm for Huriey in FTC Mss, files 8140-2-2, 8140-4;

331

Hurley to Tumulty, April 26, 1916; Wilson to Huxley, May 12, 1916, WW Mss.
This letter of May 12 was widely distributed, and drafted by Hurley.

25. Stenographic report in FTC Mss.

26. Wilson to Hurley, May 12, 1916, WW Mss. Also see Elbert H. Gary to
Hurley, May 29, 1916; Charles Dawes to Hurley, June 14, 1916, FTC Mss;
U.S. House, Committee on Interstate and Foreign Commerce, Hearings on H.R,
13568; 64:1 (Washington, 1916), 198 ff.; Bureau of Corporations, Farm-
Machinery Trade Associations (Washington, 1915); Hurley speech of Dec. 1,
1915 in WW Mss.

27. MP, 8040; PWW, IV, 314, 322; also 234-44. Also see Davies to Wilson,
Sept. 18, 1914; Wilson to Davies, Sept. 21, 1914, FTCB Mss; William Redfield
to Wilson, Sept. 18, 1914, WW Mss.

28. Speech to N.I.C.B., July, 1916, FTC Mss; Annual Report, 1916, 35;
Perkins to Roosevelt, Nov. 29, 1915, TR Mss. Also see Annual Report of the
Federal Trade Commission for the Year Ending June 30, 1917 (Washington,
1917), 32; Merchants’ Association of New York, Report of the Committee on
the Federal Trade Commission, May 20, 1915 (New York, 1915), 2; Mer-
chants’ Assoc, of N. Y., Urging Immediate Passage of the Webb Bill . . . With
Certain Suggested Modifications, January, 1917 (no place, no date), 6-9.

29. PWW, IV, 316. Also Perkins to Tumulty, Sept. 26, 1916, GP Mss; Am.
Fair Trade League to Perkins, Dec. 4, 1916, FTC Mss; and resolutions of
support in FTC Mss, file 8149-30.

30. Hurley to Wilson, Jan. 6, 1917, WW Mss. For the subsequent history of
the F.T.C., see Henry R. Seager and Charles A. Gulick, Jr,, Trust and Corpora-
tion Problems (New York, 1929), chap. XXIII.

Conclusion: The Lost Democracy

1. Paul Mattick, “Mars and Keynes,” Cahiers de L'lnstitut de Science
Fconomique A pphquee: Etudes de Marxologie, No. 5 (Janvier, 1962), 113-212.

2. Karl Marx. Capital (Chicago, 1906), I, 14-15.

3. Ibid., 532.

4. Ibid., 787, 838.

5. Ibid., 263, 296, 298, 304, 524-25.

6. Karl Marx, Capital (Moscow, 1959), III, 772.

7. Engels, Anti-Duhring, 21 1, 226.

8. F. Engels, The Origin of the Family, Private Property and the State
(Moscow, 1954), 281-82.

9. I have criticized Weber in greater detail in “A Critique of Max Weber’s
Philosophy of History,” Ethics, LXX (1959), 21-36; “Max Weber on America:
Theory and Evidence,” History and Theory, I (1961 ), 243-60.

10. Max Weber, Law in Economy and Society (Cambridge, 1954), 304-05.
Also see Max Weber, The Theory of Social and Economic Organization (New
York, 1947), 278.

11. H. H. Gerth and C. Wright Mills, eds., From Max Weber: Essays in
Sociology (London, 1948), 215.

12. Max Weber, The Religion of China (Glencoe, 1951), 247.

13. Ibid., 249.

14. Thorstein Veblen, Absentee Ownership (New York, 1923), 36-37.

INDEX

accumulation, theory of, 288, 290-91,
302

Adams, Charles F., Jr., 14
Adams, Henry C., 15
Addyston Pipe decision, 31, 62, 181
Aldrich, Nelson, 71-73, 130, 135, 284
Aldrich Plan, 184-89
banking reform and, 150-51, 153,
156-57, 182-83

on Federal Reserve Act, 243-44,
248

Taft and, 164-65, 182, 185
Aldrich Plan, 217-18, 237-38, 250-51
agitation for, 186-89, 218
formulation of, 184-85
National Citizens’ League and, 218-
219, 221-22

platforms of 1912 and, 198, 219,
221

relation to Federal Reserve Act,
224, 230, 234, 244-47
Amalgamated Copper Co., 21, 50
American Bankers Association, 147,
183, 205, 262

Aldrich Plan and, 189, 217, 222
banking reform and,

1893-1903, 147, 149
1904-1910, 152-54, 157
1912, 222

Federal Reserve Bill and, 225-32,
235-36, 238, 251

American Bar Association, 95, 206
American Life Convention, 96-97
American Meat Packers’ Association,
52, 104, 108

American Telphone and Telegraph
Co.. 24, 47-49, 143, 179-80
American Tobacco Co., 126-27, 166,
168-69, 194

antitrust

American Tobacco and, 125-27,
168-69

Clayton Act, 261-63, 267-68
consensus of values as limit on, 12,
61

F.T.C., 263-67

International Harvester and, 191
policies of Roosevelt, 65-67, 73-76,
82-84, 120-22, 127-31
policies of Taft, 164-72, 190-91
policies of Wilson, 256-60
Standard Oil and, 122-24, 167
vagueness of tradition, 61-62
see also Hepburn Bill; ShermanAnti-
tnist Act

Archbold, John D„ 13, 63-64, 82, 124
Armour, J. Ogden, 102
Armstrong, William W., 94-96
automobile industry, 43-45

Bacon, Robert, 66, 84
Baker, George, F., 144, 155, 157
Baker, Ray Stannard, 15, 86, 161
Baldwin, William H„ 171
bankers and reform; see banking re-
form; National Citizens’ League
Bankers Magazine, 149, 161-62, 233,
237

Bankers Trust Co., 141, 250
banking

decentralization of, 140-46, 155
New York and, 140-46, 251-54
panic of 1907, 144, 153-55
see also banking reform; Federal
Reserve Act

Banking Law Journal, 1 84, 233, 237
banking reform
1893-1903, 146-50

332

333

banking reform (Continued)
1904-1906, 151-52
1907-1908, 156-58

1912, 218-25

1913, 226-42
Aldrich Plan, 184-89

authorship of Federal Reserve Act,
242-47

functions of, 222, 254
organization of Federal Reserve
System, 247-54

platforms of 1912 and, 198, 219-20
Taft and, 182-89
Beck, James M., 93-94
Beer, William C., 91
Bernheim, Alfred L., 28-29
Beveridge, Albert J., 102, 104-105,
107, 193, 196
big business

belief in inevitable monopoly, 11-14,
18, 176-77

economic goals, 3, 270
initiators of regulation, 5, 160, 175-
180, 256, 270, 283-84
politics and, 5-6, 8, 161-63, 258
social elites within, 284-85
Blum, John Morton, 9, 65
Bonaparte, Charles J., 35, 86, 116,
120-21, 124, 165

on rule of reason, 129-30, 134-35,
137-38

Borah, William E., 260
Bourne, Jonathan, Jr., 124, 137
Brandeis, Louis D., 17, 139, 232
on competition, 208-209, 282
F.T.C. and, 265, 272
on labor, 207-208
New Freedom and, 207
price fixing and, 181, 208, 262, 275
scientific management and, 208
Wilson and, 207
Brosius, Marriott, 109
Brown, Walter F., 193
Bryan, William Jennings, 63, 146, 149,
159, 164

banking reform and, 220, 230, 234,
240

criticism of, 281-82
Wilson and, 205, 256
Bulkeley, Morgan, 94-95
bureaucracy

conservatism of top, 280-81
direction based on economic needs,
277-78, 296, 299, 303

bureaucracy ( Continued )

La Follette on, 213
organization of Federal Reserve
System, 247-50

organization of F.T.C., 270-73
Weber’s theory of, 295-99
Bureau of Animal Industry, 99-100,
103

Bureau of Chemistry, 109
Bureau of Corporations, 46, 53, 213,
266

American Tobacco and, 126-27, 169
beef investigation, 75, 81-82, 103
detente with International Harvester,
74, 119-21, 191

detente with U.S. Steel, 79-81, 86,
114, 117-18, 170-72
formation of, 70-71
functions of, 73-77, 131
insurance regulation and, 92-94
memo of 1913, 258
Standard Oil and, 74, 82-83, 122-24
see also Garfield, James R.

Bush, Irving T., 188, 238, 242
business disunity, 60, 109

banking reform and, 149, 151-52,
156-57, 237-40
significance of, 283-84
trade commission and, 264
unionism and, 135-36
businessmen

consensus among, 11-12, 182, 283
disunity, 60, 135, 283-84
inevitability of monopoly and, 12
Butler, George A., 147
Butler, Nicholas Murray, 82, 131

Calumet & Hecla Co., 50-51
Cannon, Joseph, 151, 164
capital

in auto industry, 43-45
European, in U.S., 19, 142
external sources of, 145
in manufacturing, 19, 145
mobility of, 19-20
sources of, 19-20
stock market and, 19
in telephone industry, 47
Carnegie, Andrew, 19-20, 62-63, 65,
131, 147, 208

regulation and, 135, 173-74, 176,
256

steel industry and, 31-34
on wealth, 129, 173

334

INDEX

Cassatt, Alexander J., 32
central banking

Federal Reserve Bill and, 224-25,
235, 252-53

functions of Treasury Department,
151, 153

proposals on, 152, 183, 226, 239
Chamber of Commerce, 248

banking reform and, 222, 237, 241
trade commission and. 262-64
Chandler, Alfred D„ Jr., 195
Chicago Association of Commerce,
187

trade commission and, 262-63, 266,
271

Chicago Clearing House, 141, 155,
157

Clapp, Moses E., 201-202
Clark, Child? & Co., 273
Clark, Lawrence E., 253
class function of business, 56, 284
Clayton Act, 261-68
Clayton, Henry D„ 259, 261-67
clearing houses, banking reform plans
and, 148, 152, 183, 187
Cleveland, Grover, 59, 62-63
Clews, Henry, 23, 27, 141-42, 152,
182

coal industry; see price fixing
commission, industrial, 135, 161
business advocacy of, 175-78, 181
Interstate Trade Commission Bill,
1911, 174-75

1912 election and, 197, 199, 259
George Perkins and, 174-76, 178,
256, 268

pressures for, 1913, 257-59, 262-66
Taft and, 177
Wilson and, 210, 261
see also F.T.C.
competition

in agricultural machinery, 45-46
in autos, 42-44
in banking, 140-46
belief in dangers of, 13-14, 178-79,
181

in copper, 50-51

F.T.C. and, 267, 272

growth of, 4, 24-30, 54-55

in insurance, 89-90

in meat packing, 52-53, 99, 102

in oil, 40-42

in steel, 30-33

competition ( Continued )
support for, 61-62
in telephones, 47-49
Wilson on, 206-207
Conant, Luther, Jr., 83, 169, 171
concentration and industrialism
capitalism and, 301-305
difference with monopoly, 8, 17-18,
209-10

efficiency of, 12-17, 208
European socialism on, 294
growth of, 26-27

inevitability of, 1, 13-17, 63, 69-70,
196, 199, 209-10, 215, 256
limits of, 54-56
Marx on, 289-90

tension with political democracy,
281-82

Weber on, 295-99

see also competition; entry; merg-
ers; monopoly; promotion
Congress

consensus on regulation, 280
initiatives on reform, 79, 118-19,
170, 220, 280
consensus

on capitalism, 5, 60-61
politicians and business, 280, 282-
285

presidents, 280-81

conservation movement, 9, 110-11, 165
conservatism
defined, 2

of federal regulation, 58-59, 161-
164, 178, 239, 251-54, 270-71,
282-83

industrial society and, 2-3, 279-81
of presidents, 280-81
Progressive Party and, 195-99
Roosevelt and, 65-67, 73-77, 83-84,
111-12

consolidations, see mergers
“conspiracy theory,” 60, 282
Coolidge, Calvin, 257, 287
Corey, Lewis, 140
corporate financing, 145
Cortelyou, George M., 72, 74, 154
Covington, James H., 263
Cowan, Samuel H., 106
Crane, Charles R., 211, 242
Creigh, Thomas, 262, 266
Croly, Herbert, 215-16
Cummins, Albert B., 178, 271

335

Daniels, Jonathan, 284
Davies, Joseph E., 269
F.T.C. and, 270-74, 278
memo of July, 1913, 258
trade commission bill and, 266
Davison, Henry P., 142, 184, 240,
244, 250

Dawes, Charles G„ 75, 131, 135
decentralization
in auto industry, 45
in banking, 140-45, 155, 252-53
myth of monopoly, 4
in steel industry, 33-34
see also competition
Delano, Frederic A., 249-50
democracy, see political democracy
Democratic Party, 63, 82, 170, 182,
270

banking reform and, 189, 219-20,
225, 230, 253

Wilson and Eastern party, 205, 281
Democratic platform, 64, 207, 219,
276-77

Department of Agriculture, 99-100,
103-104, 107

Department of Commerce, 35, 69-71
Department of Justice, 35, 83

American Tobacco and, 126-27,
168-69

business requests to, 257
International Harvester and, 121,
191

meat packing industry and, 52, 81,
103, 168

Standard Oil and, 123, 167
Department of the Treasury

central banking functions, 151, 153
panic of 1907 and, 153-56
detentes

American Tobacco and, 126-27,
168-69

business and federal government,
5-6, 203-204

International Harvester and, 74, 80,
119-22, 163, 190-91
Morgan and Roosevelt, 68-69
politics and failure of, 190-91, 203-
204, 280-81

Standard Oil and, 74, 82-83, 122-
124

U.S. Steel and, 78-81, 114, 170-72
Dewing, Arthur S., 22, 27-28
Diamond, William, 205

Dill, James B., 64, 69
diversification, economic, 54, 145
Dixon, Joseph, 202
Dodd, S. C. T„ 13, 82
donations, campaign, 76, 131, 164,
202

Dos Passos, John R„ 21-22, 64, 137-38
Dryden, John F., 92-97
Dlihring Eugen, 293
Durand, Edward D., 17
Durant, William C., 44-45

Eagle, Joe H., 234
Easley, Ralph W., 258
economics and politics, 7-8, 279-87,
301-305

capitalist economic theory and, 288
Marxist theory of, 289-94
Veblen’s theory of, 300-301
Weber’s theory of, 295-99
economists, see intellectuals
Eddy, Arthur J.

trade associations and, 180-81
trade commission and, 257, 268-69,
272

Edmunds, George F., 148
efficiency

capitalist economy and, 55, 258
concentration and, 12-15
I-a Follette and, 213
mergers and, 21, 38
scientific management, 208
elasticity, currency; see banking re-
form

Ely, Richard T., 15, 214

Endicott, William, Jr., 63

Engels, Frederick, 16, 290, 293-94;

see also Marx
entry

in agricultural machinery, 46-47

in autos, 43-44

close of, 287

factors in, 21, 54

firm mobility and, 28-29

in meat packing, 53

mergers and, 19-20

New Freedom and, 210

in oil, 40-42

scale of industrial efficiency and, 21
in steel, 37-39
in telephones, 48
Epstein, Ralph C., 43

INDEX

336

Equitable Life Assurance Society, 84,
89, 94

export, meat, 98-106; see also meat
packing industry

Farwell, James V,, 236, 242
Federal Advisory Council; see Federal
Reserve Board

federal incorporation, 63-64, 69, 73,
86, 132, 256-57
business support for, 176-77
legislation for, 133, 174, 177
National Association of Manufac-
turers and, 135
Roosevelt and, 128, 134, 137
Taft and, 166, 173-74, 177
federal licensing, 77-78, 86, 128, 173
business support for, 176, 181
Roosevelt and, 133
federal regulation

advocacy by business, 5, 58-59, 77-
78, 129, 134, 173-80, 256-59,
262-65, 270, 282-84
conservative intent of, 58-59, 161-
163, 178-80, 239, 254, 269, 282-
283

of insurance, 73, 89-97
limits on, 12, 280-84
of meat packing, 98-108
platforms of 1912, 198-99
protection from states and, 6, 78,
120, 129, 161-63, 173, 178-79,
271, 285-86

as rationalizer, 4, 176-77, 243, 251-
253, 270-71

supremacy over states, 67, 69, 78,
129, 161, 186
of telephones, 179-80
war and, 252, 277, 286-87
see also banking reform; Bureau of
Corporations; federal incorpora-
tion; Federal Reserve Board;
Federal Trade Commission
Federal Reserve Act, 256, 281

authorship of, 222-25, 228, 232,
242-47

compared to Aldrich Plan, 244-47
control over, 249-53
provisions of, 244-46
regional systems and, 249-53
Federal Reserve Board, 240, 274
character of, 245, 252-53

Federal Reserve Board ( Continued )
formulation of idea, 224-25, 227,
230-32

organizing the, 247-50
Veblen on, 300

Federal Trade Commission, 287
business attitude toward, 271, 273-
274, 277

conference rulings, 272
functions of, 273-76
law, 267-68

organization of, 270-73
Federal Trade Commission Act, 261-
268, 281

finance capitalism
failure of, 140-46, 301
panic of 1907, 153-56
Veblen on, 300-301
firm mobility, 28-29
Flint, Charles R., 21
food and drug laws; see pure food
movement

Foraker, Joseph B., 70, 73, 257
Ford Motor Co., 43-44
foreign trade, 69, 73, 84, 196-97 199,
206, 252, 275-76; see also export,
meat

Forgan, James B., 146, 157, 185-86,
223, 229-30, 235, 242, 249
Foulke, William D., 163, 193
Fowler, Charles N., 149, 153, 156-57
Frick, Henry C., 32-34, 62, 68, 80,
114-17, 227
Fuller, W. W., 126

Gage, Lyman, 149-50
Gallinger, Jacob H., 271
Garfield, James R„ 72-73, 103, 116,
165, 193, 203, 259, 280, 284
definition of Bureau of Corpora-
tions policy, 74-76, 86, 131
Standard Oil and, 74, 83, 122-24
see also Bureau of Corporations
Gary Dinners, 35-37, 117
Gary, Elbert H., 13, 18, 33-34, 161
detentes with government and, 79-
80, 117-20, 172
fear of masses, 163
Gary Dinners and, 35-37, 117
government regulation and, 64, 163,
176

Hepburn Bill and, 134, 256
price fixing and, 174, 176, 208, 256

337

Gary, Elbert H. ( Continued)
Progressive Party and, 200
Roosevelt and, 74, 79-80, 84, 118-19
Taft and, 166

Tennessee Coal and Iron and, 114-
117

Gates, John W., 20-22, 31-33, 64, 114
General Motors, 43-45
German universities, influence on in-
tellectuals, 214-15
Ghent, W. J„ 16
Gilman, Theodore, 148, 183
Glass, Carter

authorship of Federal Reserve Act,
242-47

background, 218-19
banking reform and, 1913, 223-41
Federal Reserve System and, 254
Willis, H. Parker, and, 218-20, 223-
225

Glass-Owen Bill, see banking reform
Goff, Fred, 124

Gompers, Samuel, 134, 264, 268
Grangers, 58, 99, 108
Grosscup, Peter S., 125
Gwynn, J. K., 178

Hall, E. K„ 179

Hamiltonianism, see federal regulation
Hanna, Dan, 193, 202
Hanna, Mark, 59, 63-66, 72, 216
Hansbrough, Henry C., 105
Harding, W. P. G„ 248, 250
Harper’s Weekly, 78, 205
Harriman, E. H., 67, 76, 123, 131,
143, 151

Harris, William J., 270
Harvey, George, 205-206, 21 1, 257
Hays, Samuel P., 110-11
Henry, Robert L., 234
Hepburn, A. Barton, 147, 149, 152
Federal Reserve Bill and, 222-23,
225-26, 228-31, 235, 238, 241-42
Hepburn, William P., 109, 134
Hepburn Act, 1906, 123, 212
Hepburn Bill, 1908, 134-38, 256
Higginson, Henry Lee, 130, 135, 151
157, 211, 227, 240, 263
Hill, James J., 13, 67, 143, 189
historians

on federal regulation, 2, 7, 58, 107
on finance capitalism, 139, 153
monopoly myth and, 4, 8

historians ( Continued )

on progressivism, 8-9, 281, 283,
286-87

Hitchcock, Gilbert M., 241
Hoover, Herbert, 287
House, Edward

banking reform and, 222-24, 228-
229, 231, 247, 250
Wilson and, 206, 256
House of Morgan; see J. P. Morgan
Howland, Louis, 170
Hughes, Charles Evans, 84, 94, 277
Hulbert, Edmund D., 188, 225
Hurley, Edward N., 270, 273-77

Ickes, Harold L., 204
Illinois Manufacturers Association,
270-71

income tax, 112, 129, 165, 198
incorporation of business; see federal
incorporation

Indianapolis Monetary Convention,
147-48

Industrial Commission, 28, 63, 132
industrialism; see concentration and
industrialism

initiative and referendum, 196-98, 209
innovation, see technology
insurance, federal regulation of
Bureau of Corporations and, 73, 88
movement for, 88-97
Insurgents, 165, 168, 178, 182, 192,
239

intellectuals

on failure of progressivism, 214-16
fetish of state, 286
inevitability of monopoly and, 14-
15

influence of German universities on,
214

interlocking directorates, 140, 144, 234
260, 262, 264, 268

International Harvester Co., 23, 135
detente with Bureau of Corpora-
tions, 74, 79, 81, 119-22, 163,
191

formation of, 45-46
market share of, 46, 143
1912 campaign and, 121-22, 194,
202

suit against, 191, 200
Taft and, 122, 191

INDEX

338

International Mercantile Marine Co.,
23-24, 69, 143

Interstate Commerce Act, 39, 179
Interstate Commerce Commission, 59,
71, 74, 85, 208, 213, 265
model for industrial commission,
161, 176, 197, 199, 256-57, 274
telephone industry and, 179
Interstate Trade Commission; see com-
mission, industrial
Iron Age, 25, 28, 36

Johnson, Hiram, 203
Jones, Thomas D., 211, 249
Journal of Commerce, 106, 218, 221
Joy, Henry B., 177

Keynes, John Maynard, 288
Kiefer, Andrew R., 99
Kingsley, Darwin P., 97
Kirkman, Marshall M., 161
Kline, Virgil P., 74, 83
Knox, Philander, 65, 67-70, 74, 76, 85,
280

Kuhn, Loeb and Co., 44, 52, 143-44
labor unions

Clayton Act and, 263-64, 268
compared to corporations, 76
as conservative barrier, 164. 214,
285

open shop, 119, 164, 207
scientific management and, 208
Sherman Act and, 62, 134-38
in steel industry, 119
La Toilette, Robert M., 112, 192, 209,
211-213, 240, 263
laissez faire

business expediency and, 4, 9, 60,
181

as myth, 4, 60

regulation versus, 4, 58, 60-61
support for, 61
Wilson and, 204-205,211
Landis, Kenesaw M., 123, 125
Laughlin, J. Laurence, 148, 156

authorship of Federal Reserve Act,
242-47

banking reform, 1912, 218-25
Federal Reserve Bill and, 227, 236-
237, 242

National Citizens’ League and, 186-
188, 218

Laughlin, J. Laurence ( Continued )
Willis, H. Parker, and, 148, 218-25
Lee, Higginson and Co., 44-45, 144
Link, Arthur S., 9, 204, 206
Littlefield resolution, 70-71
Livermore, Shaw, 27-28
Lloyd, Henry D., 1 6
Lodge, Henry Cabot, 71, 130, 193,
203

Logan, James, 13

Low, Seth, 77, 131, 133-37, 173, 176,
259, 261

Luxemburg, Rosa, 294

McAdoo, William G., 225, 229-31,
236, 247, 253, 269
McCarthy, Charles, 198, 265
McCormick, Cyrus H., 74, 119, 166,
202, 211

McCormick, Medill, 193, 202
McKinley, William, 63, 65, 148
McReynolds, James C., 126-27, 169,
256, 258-59
Mann, James R., 70
market shares, 28

in agricultural machinery, 46
in copper, 50-51
in meat packing, 53
in oil, 40
in steel, 37-38
in telephones, 48
see also entry
Martin, S. A., 15
Marx, Karl, 6-7, 289-94, 304
Mattick, Paul, 289
meat packing industry

Bureau of Corporations and, 75,
81-82

competition, 53

movement for federal regulation,
99-108

pooling efforts, 51-52
Mellen, Charles S., 162-63
Merchants’ Association of New York,
135, 266
mergers

in agricultural machinery, 45-46
causes of, 19-20, 22, 24
extent of, 18-19
in meat packing, 52
overcapitalization of, 21-23
promoters and, 20-21
in steel, 31-33

339

mergers ( Continued )
success of, 23-25, 27-30
Metcalf, Victor, 80
Miller, Adolph C„ 249-50
Miller, William, 9, 55
mobility, occupational, 55
Money Trust; see Pujo Committee
monopoly

belief in inevitability of, 11-17
difference with concentration, 8, 17-
18

limits on, 54
Marx on, 289-90
as slogan, 62
in telephones, 47

see also concentration and industri-
alism

Montague, Gilbert H., 266
Moody, John, 15

Moody, William H„ 39, 74, 85, 121,
123

Moore, Charles S., 92
Moore and Schley, 21, 115-1C
Moore, William H., and James H.,
20-21, 31

Morawetz, Victor, 134, 177, 183-84,
226, 272

Morgan, Dick T., 260
Morgan, J. P., 5, 17, 21, 37, 44-46,
48, 59, 91, 106, 205, 257
banking and, 139-46, 253
banking reform and, 157, 227
detentes with Roosevelt, 68-69, 114,
119-20

election of 1908 and, 164
formation of U.S. Steel and, 31-33
myth of power, 139-40, 153-55, 300
panic of 1907 and, 153-55
Progressive Party and, 203-204
as promoter, 22-24, 142-43
Taft and, 168, 191, 200
Tennessee Coal and Iron and, 114-
118, 156

see also Perkins, George W.
Morgan, J. P., Jr., 200-201, 227
Morgenthau, Henry, 211, 225-26
Morton, Paul, 74, 85
Mowry, George E., 193
muckrakers
on monopoly, 15-16
Roosevelt and, 1 1 1-12
superficiality of, 112, 160-61, 286
Muhleman, Maurice L., 183

Muhse, A. C., 169

Munsey, Frank A., 193-95, 197-99,
201, 203

Nagel, Charles, 165, 171, 174
National Association of Credit Men,
227, 242

National Association of Manufac-
turers, 109

banking reform and, 156, 236-37
on federal incorporation, 135
trade commission and, 264, 273
unionism and, 135, 283-84
National Banking Act, 140-41, 145
national banks, 140-41, 247
National Board of Trade. 108, 185,
187

National Citizens’ League for the Pro-
motion of a Sound Banking Sys-
tem, 248

banking reform, 1912, and, 217-22
Federal Reserve Bill and, 228, 236-
238, 241

organization of, 186-88
see also Laughlin, J. Laurence
National Civic Federation, 66, 1 19,
129, 131, 164

Hepburn Bill and, 131-38, 256, 258-
259

questionnaire of 1911, 176, 178,
256

trade commission and, 258-59
trust conference of 1907, 131
National Industrial Conference Board,
27, 274

National Monetary Commission, 158,
182, 187-92, 243-44
National Packing Co., 52, 168
National Progressive Republican
League, 192

National Pure Food and Drug Con-
gress, 108-109

National Reserve Association; ree Aid-
rich Plan

Neill, Charles P., 104-105, 107
Nelson, Knute, 105-106
Nelson, Ralph L., 28
New Freedom, 206-207, 265
Brandeis and, 207-209
as campaign issue, 209-1 1
completion of, 269-70
vagueness of, 207-11, 255, 278
New Haven Railroad, 118, 162, 208

340

INDEX

Newlands, Francis G.

federal incorporation and, 133
trade commission and, 174-77, 257,
261, 263, 265

New Nationalism; see federal regula-
tion; Roosevelt

New York, banking system and, 140-
146, 150, 251-54

New York Board of Trade and Trans-
portation, 130, 135, 156
New York Chamber of Commerce,
152-53

New York Clearing House, 141, 154-
155, 157

New York Legislature, 84, 91, 94-95
New York Life Insurance Co., 65, 91,
93, 97

New York Stock Exchange, 141, 153,
252

Northern Securities Case, 67-68, 73,
84

oligopoly, 288, 290
Olney, Richard, 62-63, 240, 248
open shop, 119, 164, 207
organization of industry, 29-30, 33-34,
45

Outlook, 171, 192, 240
overcapitalization, 117
of mergers, 20-24, 27-28
stock market and, 23, 73
Owen, Robert L., 229-31, 235-36, 243

panic of 1907, 144. 153-56
Parry, Will H„ 270, 272
patents, 29, 41, 44, 47, 49
Patten, Simon N., 15, 214
Pattison, John M„ 90-91
Paul v. Virginia decision, 90, 95
Penrose, Boies, 64, 131
Perkins, George W., 84, 106, 115, 150,
276-77

banking reform and, 157, 248
commission concept and, 174-76,
178

Department of Commerce Bill and,
70-71

detentes with Roosevelt, 69, 113,
119-21

federal regulation and, 129, 173-76
Hepburn Bill and, 134-38, 256
insurance industry and, 91
International Harvester and, 46

Perkins, George W. ( Continued )
Morgan, J. P., Jr., and, 200-201
Progressive Party and, 192-204
Roosevelt’s early career and, 65-66
Roosevelt’s 1912 candidacy and,
192-95

Taft and, 164-65, 168, 191-92
unionism and, 119
U.S. Steel and, 34-37
Petroleum Producers’ Union, 40
Phillips, David Graham, 112, 161
Pinchot, Amos

Big Business in America, 203-204
Progressive Party and, 198, 201,
203-205

Roosevelt and, 193, 203
Pinchot, Gifford, 111, 165, 192-93
Platt, Orville H„ 72, 91, 151
political capitalism

attempt to formalize, 132-33, 212,
256, 266, 272

based on class society, 284-85, 297,
302-303

consensus and, 280-86, 302
defined, 2-3, 58-59
later development, 285, 304
Pinchot, Amos, and, 203-204
as protection from masses, 2-3, 161-
164, 178-80, 271, 285, 298, 302
Roosevelt's arbitrary, 160
synthesis of politics and economics,
8-9, 279-81, 301-305
Weber’s definition of, 295-99
political democracy

dangers of, 58, 161-64, 178-79, 299,
302

economic power and, 162, 209-10,
281-82

Veblen on, 300
political leaders

big business and, 59-60, 62-64, 130-
132, 227-28, 281

capitalism and, 3, 60-61, 253-54,
277-78, 298, 302, 304
Veblen on, 300-301
politics

big business and, 5, 259-60, 280
consensus with business. 60-61, 253,
269-70, 277-78, 302-305
and relationship to economics, 8,
279, 295-99, 301-305
see also politics of 1912; Progres-
sive Party

politics of 1912
campaign donations and, 202
failure of detente system and, 190-
191, 204

Perkins and, 192-95, 198-202
platforms, 198-99
Progressive Party, 195-99, 204
Taft-Roosevelt relations and, 164-
168, 170-71, 191
unanimity, and, 281
Wilson and, 206-207
pools; see voluntary regulation
Populism, 16, 58, 146, 285, 304
Porter, Clarence E., 92
power among businessmen, 60, 283
presidency and consensus with busi-
ness, 5, 280; see also Roosevelt;
Taft; Wilson
price fixing

Brandeis on, 208, 262
business and, 173-74, 177, 181, 262,
268, 275-76

Pinchot, Amos, on, 204
see also Gary Dinners
Progressive Party, 9, 172, 210
composition of, 195
finances of, 201-202
formation of, 194-95
after 1912, 203-204
Perkins and, 195, 198-99, 201-203
platform, 196-99
reasons for decline, 204
progressivism

business and, 284-85
collapse of, 286-87
consensus in politics, 280-81
as conservatism, 2, 270, 279
conventional interpretation, 7-9
defined, 2-3, 8-9

intellectuals on failure of, 214-16,
286

results and intent of, 278, 280-81
promotion, 20-24, 26-56
publicity and regulation, 67, 70, 121
Pujo, Arsene P., 219, 221
Pujo Committee, 139, 144, 219-21,
227, 229

pure food movement, 108-10; see also
Wiley, Harvey W.

Quincy, Josiah, 233

railroads and federal regulation, 59

341

Railway Executives’ Advisory Commit-
tee, 262, 269

Randolph, Carman F., 95-96
rationalization

business interest in, 58, 179, 212
defined, 3

Federal Reserve Board and, 249-53
F.T.C. and, 267-68, 272
Weber and, 295-99
rebates, 39, 82-83, 122-23
recall, 193, 197, 198, 206, 209
Redfield, William C., 258, 275
reform

conservative definition of, 158, 161-
163

illusion of, 160, 285-86
redirection of, 214-15, 220-21, 256,
285-86

regional banking plans; see banking
reform

regulation of industry, 3, 12, 57-60;

see also federal regulation
Republican Party

big business and, 164
convention of 1912, 192
financial reform and, 148-49
Taft-Roosevelt split and, 168, 192
Republican platform
on banking, 182
of 1912, 198-9 9
on trusts, 64, 65, 76, 164
resources, shifting, 54
in copper, 50-51
in oil, 41

restraint of trade, 62, 207, 261
Reynolds, George M., 157, 186
Federal Reserve Bill and, 223, 226,
229-32, 235, 241, 249
Reynolds, James B., 104, 105, 107
Robinson, Douglas, 66, 202
Rockefeller, John D., 13, 17, 35, 63,
71, 78, 124

Rockefeller, John D., Jr., 71, 284
Rogers, Henry H., 21, 34, 50, 63, 74,
82

Roosevelt, Franklin, 287
Roosevelt, Theodore, 58, 64, 215 16.
280-81, 296

antitrust policies of, 61, 65-67. 0'<
70, 75-76. 82, 121-23, 127-29,
133

banking reform and, 149-58, 187,
189

342

Roosevelt, Theodore ( Continued)
on character and conduct, 70, 76-77,
84, 87, 128

conservation and, 110-11
as conservative, 9, 65-66, 73-77, 83-
84, 111-12, 130, 159-61, 203, 212
on corporations, 69-70, 73-77, 87-
88, 127-30, 136, 197
detentes and, 6, 68-69, 120-22
detente with U.S. Steel, 79-80
Hepburn Bill and, 133-38
insurance regulation and, 88, 93, 95-
97

meat inspection and, 102-107, 112
muckrakers and, 111-12, 160
Perkins, 1912, and 193-95, 201-204
personal loyalties, 84-85, 116-19, 171
Progressive Party and, 195-97, 201-
204

pure food laws and, 108-10
on regulation of corporations, 128-

129, 133, 175, 197, 210-12, 257,
283

Standard Oil and, 39, 71, 83, 122-25
Taft and, 164-65, 167-68, 170-71,
191

Tennessee Coal and Iron and, 116-
118, 170-71

unionism and, 66, 76, 87, 119, 135-
138

on unity of class interests, 67, 87
Root, Elihu, 65, 67, 73-74, 76, 84, 96,

130, 135, 165, 280

American Tobacco and, 125-27,
169

banking reform and, 241, 244, 250
Roosevelt and, 84
Tennessee Coal and Iron and, 116
Rothschild, V, Sidney, 232
Rublee, George, 264-65, 270-72
rule of reason, 62, 135, 296
Bonaparte’s objections to, 129-30
Roosevelt and, 128, 137-38
Standard Oil decision and, 167
Russell, Charles Edward, 51, 81, 101,
161

Ryan, Thomas Fortune, 65, 84, 125-26,
169, 205

Sage, Russell, 23
Satterlee, Herbert L„ 244
Schiff, Jacob H„ 152, 211, 239-40
Schumpeter, Joseph, 29, 54

INDEX

Schwab, Charles M., 13, 33-34, 38,
114

Seligman, Henry, 45, 50, 21 1
Seligman, Isaac N., 131, 135
shareholdings, minority, 143
Shaw, Leslie M., 130, 150, 154
Sherman Antitrust Act

amendment of, 131, 133-38, 164,
175, 177, 198-99, 258-59, 261,
263

opposition to, 121, 128, 131-32, 181,
197

unions and, 62, 132, 134
vagueness of, 61-62, 166
see also antitrust; Clayton Act
Sherman, John, 61

Sinclair, Upton, 98, 101-103, 105, 107,
112

Sloan, Alfred, 45
Smith, Adam, 288
Smith, Adolph, 101
Smith, Byron L., 233
Smith, Herbert Knox, 82, 94, 118-19,
122, 126-27, 131, 165, 173, 175
defense of detente system, 121
Hepburn Bill and, 131, 133-34, 136-
137

Taft and, 168, 171, 172
see also Bureau of Corporations
Smith, James, 205-206
Smith, Willard A., 163
Social Darwinism, 9, 57, 214
social ties, business and political elites,
59, 72-73, 160, 284-85
Socialists, 101

fear of. 66, 130, 174, 176, 192, 208,
213, 285

on monopoly, 16-17, 304
Standard Oil Co., 13
banking and, 143, 145
Bureau of Corporations and, 74,
82-83, 122-24

dissolution suit, 123-25, 166-67,
194

federal regulation and, 63-64, 82
growth of competitors, 40-41
prices, 39-40
as producer, 40
rebating suit, 123, 125
Stanley Committee, 170-71, 174, 177,
203

state

idealization of, 214-15, 286

343

state ( Continued )

Marx’s theory of, 290-94
under political capitalism, 301-305
resilience of capitalism and, 294
Smith’s theory of, 288
Veblen’s theory of, 300-301
Weber’s theory of, 297-99
state banks, 140-41, 186
states

danger to business from, 5-6, 120,
130, 161-63, 173, 178, 180, 283,
285

federal supremacy over, 67, 69, 78,
161-63, 285

regulation of insurance, 89-93
status, social, of businessmen, 9, 55
steel industry; see United States Steel
Corporation

Steffens, Lincoln, 15-16, 139
Stetson, Francis Lynde, 22, 59, 63-64,
72, 77, 168, 268, 284
federal incorporation and, 173
Hepburn Bill and, 134
insurance regulation and, 95-96
on reform, 163-64
Stevens Bill, 264-65
Stevens, Raymond B., 264
Stickney, Albert, 163
Stillman, James, 155, 240
stock market, 19, 23
Straight, Willard, 202, 216
Straus, Oscar, 118, 121, 130, 280
Strong, Benjamin, 249-52
Sumner, William Graham, 57, 214
Supreme Court, 62, 73, 166-69, 261
Swift & Co., 51-52, 107, 168
Swift, Edward F., 52-53

Taft, William Howard, 71, 74, 211,
257

antitrust policies, 165-68, 170-72,
175-77

banking reform and, 158, 182, 184-
185, 189, 217

industrial commission and, 177
International Harvester and, 122,
191, 200, 202

Morgan support of, 164, 200
as politician, 168, 190-92, 281
politics of 1912 and, 192-95, 199-
202

Roosevelt and, 159-60, 164, 168,
170, 191

Talbert, Joseph T., 178
Tarbell, Ida, 17, 161, 203
Taylor, Frederick W„ 208
technology

in auto industry, 44-45
capitalism and, 302-304
Marxist concept of, 289
merger efficiency and, 21, 27-28,
54-56

new industries and, 54-55
in oil industry, 41-42
in steel industry, 37-38
in telephone industry, 49
see also efficiency

telephone industry, see American Tele-
phone and Telegraph Co.
Tennessee Coal and Iron Co., 37-38
acquisition by U.S. Steel, 114-17,
156

1909 investigation of, 117-18
Stanley Committee and, 170-71
tobacco industry; see American To-
bacco Co.

tontine insurance, 89
trade associations, 176-77, 180-81,

258, 268, 272, 275-77, 284
Treman, Robert H., 236
Trumbull, Frank, 269
trust

defined, 17-18
issue of 1900, 64-65
Wilson and, 261
see also antitrust; monopoly
Tumulty, Joseph, 233, 241, 269

Underwood, Oscar W-, 219-20, 253
United States Steel Corporation, 18,
22-23

antitrust suit, 171-72, 174-75
background of merger, 30-33
decline of, 37-39

detente with government, 79-81,
114. ,119-20, 170-72
labor and, 118-19
market shares of, 37, 143
1912 campaign and, 193-94, 203
profits of, 34

Stanley Committee inquiry, 170-71
steel prices, 35-36
structure of, 29, 33-34
Untermyer, Samuel, 219-20, 229-30,
240-41, 243, 259

344

INDEX

Vail, Theodore N., 48-49, 180
Vanderlip, Frank A., 152, 189, 227,
235, 239-41, 271

Van Hise, Charles R., 262, 264-65,
272

Veblen, Thorstein, 214, 288, 300-301
Villard, Oswald Garrison, 112, 271
voluntary regulation, 44

failure of merger movement and,
4, 55-56

pools, 30-31, 51-52
see also competition
Vreeland, Edward B., 157, 186

Wade, Festus J., 226, 231, 232, 234,
239-40

Wadsworth, James W., 104-106
Walker, Joseph H., 147,

Wall Street Journal, 78, 139, 227-28
war and federal regulation, 251-54,
277, 287

Warburg, Paul M., 182, 184
Aldrich Plan and, 184, 186
authorship of Federal Reserve Act,
242, 244

banking reform plan, 184
Federal Reserve Bill and, 225-26,
228-29, 238, 242

Federal Reserve System and, 248-
252

National Citizens’ League and, 188,
218

Ward, Lester, 214

watered stock; see overcapitalization
Webb-Pomerene Act, 275-76
Weber, Max, 6-7, 288, 294-99
welfare proposals, 197-98, 284
Wexler, Sol, 231-32, 241-42
Wheeler, Harry A., 237, 241, 248
Wickersham, George W., 48

American Tobacco dissolution and,
168-69

antitrust policies of, 166-69, 174,
181

government regulation and, 174,
177, 257

International Harvester and, 190-91
Taft-Roosevelt relations and, 170-71

Wiley, Harvey W., 101, 108-10
William, John S., 247
Willis, H. Parker

authorship of Federal Reserve Act,
242, 244, 246-47

Federal Reserve Bill and, 223-25,
228-29, 234

on Federal Reserve System, 248,
253

Glass Committee and, 218-20
Laughlin and, 148, 187, 218-21,
223-25, 229

National Citizens’ League and, 218-
221

Wilshire, Gaylord, 17
Wilson, James, 104, 107
Wilson, Thomas E., 105
Wilson, Woodrow, 5, 58, 202, 280, 287
antitrust policies of, 206-207, 255-
260

banking reform and, 222-25, 227-
228, 230-32, 234, 238-41
on big business, 206-207, 209-11,
249, 255, 261
Brandeis and, 207-209
business attitude toward, 257, 260-
261, 266, 268-69, 274-75
Clayton Act and, 259-60, 263-65
on competition, 206-207, 209-11
as conservative, 9, 204-207, 209-11,
255-60, 265-66, 269, 275-76, 281-
282

early career, 204-206
Federal Reserve System and, 247-
250

on foreign trade, 275-76
Harvey, George, and, 205-206, 211,
257

House, Edward, and, 206, 256
Hurley, Edward N., and, 274-77
Link, Arthur S., on, 9, 204
New Freedom and, 209-11, 255-56,
269-70

Perkins and, 206

trade commission and, 259-61, 265-
267, 273-77